MGM: Diller’s IAC/InterActive Takes 12% Stake in MGM for $1 Billion

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Here are highlights:

1. MGM shares jumped 22%
2. Online gaming market represents a $450 billion global opportunity
3. IAC InterActive Corp. said it has built a 12% stake in hospitality and entertainment company MGM Resorts International for about $1 billion.

(Bloomberg) -- IAC InterActive Corp. said it has built a 12% stake in hospitality and entertainment company MGM Resorts International for about $1 billion.

“With the separation of Match Group from IAC, and ‘new’ IAC emerging with $3.9 billion of cash, no debt, and its opportunistic zeal intact, we are energized and excited to make this investment in MGM,” IAC Chairman Barry Diller said in a statement Monday.

MGM shares jumped 22% and IAC shares rose 1.4% Monday morning in New York after the announcement.

One thing that attracted Diller to MGM in particular is an area that currently comprises a tiny portion of its revenue – online gaming. That market represents a $450 billion global opportunity, according to IAC, with less than 10% penetration online.

In a letter to shareholders, Diller said investors might be surprised by the move. It’s unusual for IAC to purchase a large stake in a public company, he said. Furthermore, IAC purchased MGM’s common equity, “the exact same securities that any investor with exactly $19 could buy and sell any day in the market.”

IAC is also buying securities in a business that has relatively little to do with the internet today, veering from its traditional strategy. The reason is “that we believe MGM presented a ‘once in a decade’ opportunity for IAC to own a meaningful piece of a preeminent brand in a large category with great potential to move online.”

MGM, like other casino operators, has been hit hard by the coronavirus, which triggered a monthslong closing of its properties in the U.S. and a severe contraction in Macau.

The company is in a position to weather the storm, having sold nearly all of its resorts to investors in a sale-leaseback arrangement that freed up billions in cash. Still, MGM has cut staff and furloughed others as it copes with far less business due to the virus.

The company last month gave its chief executive officer position permanently to Bill Hornbuckle, a company veteran who had been acting CEO since March. In a previous role, as marketing chief, Hornbuckle spearheaded MGM’s customer-loyalty program, which IAC cited as one of the enticing aspects of the company.