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US – Caesars rejects MGM’s opening bid in battle of the REITs

By - 17 January 2018

Las Vegas’ two heavyweight casino groups are dusting themselves down after an opening round saw Caesars fend off a bid from MGM who wanted to buy 20 of its casino resorts.

MGM had publicised a letter it sent to Caesars pitching the deal atUS$5.8bn.

Whilst ultimately involving the two biggest gaming companies in Las Vegas, the deal involved a bid by MGM Growth Properties, the entity created by MGM post-recession to act as its landlord, for VICI Properties, a division created post bankruptcy by Caesars Entertainment.

Both MGM Growth and VICI are Real Estate Investment Trusts, known as REITS, who own assets such as land and resorts and lease them back to their operating companies. REITs are generally seen as spinoffs capable of securing significant tax breaks.

MGM Growth had said it wanted to ‘acquire 100 per cent of VICI’s outstanding common stock for $19.50 per share.’

The combined REIT would have owned a total of nine resorts on the Las Vegas Strip. In total it would have had a value of approximately US$22bn. If the deal had completed, MGM Resorts’ ownership stake in the combined REIT would have been reduced to 41 per cent whilst Vici shareholders would have owned 43 per cent of the combined company assuming an all-stock transaction.

However VICI CEO Edward Pitoniak rejected the deal, saying: “VICI’s Board unanimously believes that our prospects as a standalone independent company will deliver significantly superior results for our shareholders. With our high quality, diversified real estate portfolio and best-in-class corporate governance, we are best positioned to successfully execute on our identifiable embedded growth from call-option and right of first refusal assets and our active pipeline of incremental accretive acquisitions. Through this we believe we will create greater long-term value than by pursuing MGP’s proposal.”

James Murren, Chairman of the Board of MGM Growth Properties, pictured, has said as he opened discussions: “The combination of VICI and MGP would create one of the largest triple net lease REITs, with an unmatched portfolio of high quality leisure, entertainment and hospitality assets. A combination would also create a larger and better capitalized company with greater scale and an enhanced financial profile to support additional opportunities to create value for our respective shareholders. The combination would also establish a larger combined company with greater efficiencies and an enhanced financial profile that in our view will provide a better path toward maximising the value of future growth opportunities.”

The potential deal was described by Dr. Tony Alamo, Chairman of the Nevada Gaming Commission, as a business deal between two landlords in which MGM Resorts International, would become the landlord for properties operated by Caesars Entertainment.

Alex Bumazhny, a gaming analyst with Fitch Ratings, said: “There should not be any conflicts of interests in theory. Caesars’ leases, and other agreements such as the right of first refusal on certain assets, should dictate the nature of the relationship between Caesars and VICI or MGP.”
Through its 20 casino resorts, VICI operates 14,500 hotel rooms and more than 150 restaurants, bars and nightclubs. Its properties are leased to leading brands such as Caesars, Horseshoe, Harrah’s and Bally’s.

Its portfolio includes Harrah’s and Caesars Palace in Las Vegas, Caesars in Atlantic City, the Horseshoe in Hammond, Indianapolis, Harrah’s and Harveys in Lake Tahoe, Harrah’s Louisiana Downs, Bluegrass Downs in Kentucky, the Roadhouse and Horseshoe in Tunica, Mississippi, the Horseshoe in Southern Indiana, the Horseshoe and Harrah’s in Council Bluffs, Iowa, the Horseshoe in Bossier City, Louisiana, Harrah’s in Reno, Harrah’s in North Kansas City, Harrah’s in Metropolis, Illinois, Harrah’s in Joliet, Illinos, Bally’s in Atlantic City and Harrah’s in Biloxi, Mississippi.

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