weather icon Clear

MGM Resorts bows to pressure, names Icahn protege to board

MGM Resorts International is bowing to pressure from activist hedge funds after months of rumored displeasure with the company’s stock performance.

The Las Vegas-based casino operator Thursday named Corvex Management founder Keith Meister to the board. Meister previously worked for activist investor Carl Icahn and had been described as his right-hand man.

Corvex Management has a history of seeking changes at companies it invests in, including fast food operator YUM! Brands and oil producer Energen.

The New York-based hedge fund now owns approximately 3 percent of MGM Resorts, the companies said in a joint press release. Corvex owned less than 1 percent of MGM Resorts as of Sept. 30, implying it bought about $300 million of the casino operator’s stock since October.

“As a significant shareholder in our company, we have been engaged in constructive dialogue over the last several months,’’ MGM CEO Jim Murren said in the statement, adding management’s strategy is “aligned’’ with Corvex.

Corvex did not immediately return a request for comment

Hedge fund buying

Activist hedge funds have been swarming around Las Vegas-based casino operators including MGM Resorts and Caesars Entertainment Corp. since their stock prices tanked in the summer, according to media reports.

MGM Resorts and Caesars Entertainment cut their earnings outlook last year, sending their shares tumbling more than 4o percent and spurring speculation of growing hedge funds interest.

Starboard Value has been buying up shares of MGM Resorts, according to Reuters while Carl Icahn has acquired a stake in Caesars Entertainment. Neither Starboard nor Icahn immediately returned a call for comment.

“They are feeling some pressure from investors to have their stock work a little better. They are starting to hear it,’’ Jefferies gaming analyst David Katz said of MGM Resorts’ decision to nominate Meister.

Cheap valuation

MGM Resorts owns more than 50 percent of MGM China, which operates two Macau casinos, and more than 70 percent of MGM Growth Properties, a property fund.

When excluding the value of those businesses, MGM Resorts’ domestic operations are valued at about eight times this year’s operating cash flow. That is a 25 percent discount to recent industry acquisition prices of 10 times, according to JPMorgan.

“We note this (MGM valuation) is among the lowest in our coverage universe,’’ the bank said in a note last week as it raised its 12-month price target for MGM Resorts shares to $38, which implies nearly 35 percent upside.

Job cuts

MGM earlier this month said it would boost its yearly cash flow $300 million by 2021 as it cuts jobs, centralizes operations and invests in technology.

Analysts interpreted the timing of that announcement as a nod to growing pressure from activist hedge funds.

Despite the earnings miss last year, MGM Resorts is nonetheless on the right path, analysts say.

The company has invested $6 billion to build three new casinos over the past several years as well as $650 million to revamp and rebrand Park MGM on the Strip.

Those projects will help lift operating cash flow to as high as $3.9 billion by 2020, an increase of more than a third compared with 2017, one of the best growth rates in the industry.

That will enable MGM Resorts to return more cash to investors while also paying down debt.

“You have to give MGM management a lot of credit for that. They have managed the balance sheet extremely well. This is a much better run business that it was years ago,’’ said Katz.

“But the stock would tell you they have more to do.’’

Shares of MGM Resorts rose 36 cents, or 1.3 percent to $28.10. The shares are still down a quarter from their 12-month high.

Contact Todd Prince at 702-383-0386 or tprince@reviewjournal.com. Follow @toddprincetv on Twitter.

Don't miss the big stories. Like us on Facebook.
Business Videos
How much do Las Vegas casino CEOs make?
Las Vegas gaming CEOs made anywhere between $1 million and $24 million last year, according to company filings with the U.S. Securities and Exchange Commission. ((Las Vegas Review-Journal)
30-year-old Rio needs a little TLC
Nearly 30 years after the Rio opened, the red and blue jewel that helped catapult Las Vegas to a new level with its buffet and nightclub has lost its status along with its shine.
The latest on the Drew Las Vegas - VIDEO
Eli Segall recounts his tour of the Drew Las Vegas, formerly the Fontainebleau, on the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
Pinball Hall of Fame to move near south Strip
Operators of the Pinball Hall of Fame have been approved to build a new, larger arcade near the south edge of the Strip on Las Vegas Boulevard near Russel Road. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
National Hardware Show underway Las Vegas
The National Hardware Show kicked off Tuesday at the Las Vegas Convention Center (Mat Luschek / Review-Journal)
Caesars for sale?
Caesars Entertainment Corp. has been swept up in takeover speculation since the company’s share price tumbled last year amid disappointing earnings and concerns over a recession. Amid the decline, hedge funds scooped up shares. Billionaire activist investor Carl Icahn began buying shares of Caesars as early as January. Icahn acquired nearly 18 percent by mid-March. In February Icahn called on the Caesars board to study a sale as a way to boost shareholder value.
Las Vegas home prices
Las Vegas home prices grew fastest among major markets in February for the ninth straight month. But amid affordability concerns, the growth rate has slowed down. Southern Nevada prices in February were up 9.7% from a year earlier, according to the latest S&P CoreLogic Case-Shiller index. The last time Las Vegas' price growth fell below 10% was in September 2017, S&P Dow Jones Indices reported.
Free Parking Coming To Wynn
Free parking will come to the Wynn and Encore resorts on May 1, 2019. (Mat Luschek / Review-Journal)
Founding Venetian employees talk about 20 years at the Strip resort
The Venetian, which opened May 3, 1999, is celebrating 20 years on the Las Vegas Strip. Seven original employees talk about opening the luxury resort and working there for two decades. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Circa aiming for December 2020 opening
The 1.25-million-square-foot property will have 44-stories and 777-rooms. It will also have a separate nine-story, 1,201-space parking garage.
Boxabl official explains the building concept
Boxabl business development manager Galiano Tiramani shows off a room built by his company. (Blake Apgar/Las Vegas Review-Journal)
TI/Mirage Tram reopens
The tram that shuttles guests between TI and Mirage reopened this week after being closed for much of 2018.
Las Vegas Convention Center expansion taking shape
Renderings and actual footage show how the Las Vegas Convention Center is evolving.
Former Starbucks CEO Howard Schultz at Las Vegas convention
Former Starbucks CEO and potential presidential candidate Howard Schultz spoke at the Epicor Insights user conference at Mandalay Bay Convention Center Wednesday, April 17, 2019. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Drew Las Vegas to open in the second quarter of 2022
The 67-story Drew Las Vegas is slated to open in the second quarter of 2022 at the north end of the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
NAB Day 1 (Time Lapse)
NAB kicked off at the Las Vegas Convention Center on Monday, April 8, 2019. (Mat Luschek / Review-Journal)
National Association of Broadcasters Show shows 1mm thick 8K TV with 22.2 channel digital sound
Japan’s NHK Science & Technology Research Laboratories booth featured a 1mm thick 8K TV system used in conjunction with a 22.2 channel digital sound system at the National Association of Broadcasters Show at the Las Vegas Convention Center. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Nevada shoppers react to Smith’s no longer accepting Visa credit cards
On March 1, Smith’s announced that it would no longer be accepting Visa credit cards at any of its 142 supermarkets, including the 45 in Nevada.
Massachusetts Gaming Commission asks how long Wynn executives knew about misconduct
Business reporter Rick Velotta gives an update on the adjudicatory hearing on the suitability of Wynn Resorts to retain its gaming license in Massachusetts.
Henderson app developer part of Startup in Residence
Henderson based developers of the app On Point Barricade are taking part in Startup in Residence, a North America program dedicated to pairing tech companies with governments. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Sam's Town employees and customers talk of their love for the iconic casino
Longtime Sam's Town employees and customers love each other and love their casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Las Vegas apartments rents
Las Vegas’ apartment market has accelerated in recent years. Developers are packing the suburbs with projects, landlords are on a buying spree, and tenants have filled buildings.
William Boyd talks about the birth of Sam's Town
On the eve of the 40th anniversary of Sam's Town, William Boyd, executive chairman of Boyd Gaming and son of hotel namesake Sam Boyd, talks about how the casino became one of the first local properties in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
High Roller observation wheel turns five
The world’s tallest observation wheel celebrates it’s fifth year on Sunday, March 31, 2019. (Michael Quine/Las Vegas Review-Journal) @Vegas88s
Escape Room Industry Growing In Las Vegas
Escapology employees discuss the growing escape room industry in the U.S. and Las Vegas. (Bailey Schulz/Las Vegas Review-Journal)
Impact of parking fees on visiting the Las Vegas Strip
There are no data showing a relationship between Strip resort and parking fees and the number of out-of-state visitors to Las Vegas. But there are data showing a relationship between Strip parking fees and the number of local visitors to the the Strip. ‘’As a local, I find myself picking hotels I visit for dinner or entertainment, based on whether they charge for parking or not,”’ said David Perisset, the owner of Exotics Racing. ‘’It is not a matter of money, more of principle.’’ A 2018 survey by the Las Vegas Global Economic Alliance found 36.9 percent of Clark County residents reported avoiding parking at Strip casinos that charge for parking. 29.1 percent reported avoiding using any services from a Strip casino that charges for parking.
MGM's sports betting deals
MGM Resorts International signed a sports betting sponsorship agreement with the NBA in July It was the first professional sports league to have official ties with a legal sports betting house. The deal came just two months after the U.S. Supreme Court overturned a law prohibiting sports betting in most states. In October, MGM became the first gaming company to sign a sports betting partnership with the NHL. In November, MGM became the first gaming company to sign a sports betting partnership with the MLB. Financial terms of Tuesday’s deal and earlier partnerships have not been announced.
Faraday puts Las Vegas land on the market
Nearly two years after Faraday Future bailed on its North Las Vegas auto factory, the company has put its land up for sale. (Michael Quine/Las Vegas Review-Journal)
El Cortez owner Kenny Epstein on running the iconic property
Kenny Epstein, owner of the El Cortez Hotel in downtown Las Vegas, talks about Jackie Gaughan mentorship and answers rumors about bodies in the basement at the mob-era casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
LVCVA recommends construction of underground people mover
The Las Vegas Convention and Visitors Authority announced the recommendation for an underground people mover for the convention center. The system would have the potential to expand and connect Downtown and the resort corridor all the way to McCarran. (Michael Quine/ Las Vegas Review-Journal)