The casino industry is in the midst of consolidation as regional operators gobble up independent companies and smaller chains.
Now, thanks to pressure from some key hedge funds, the restructuring might take a different turn, including the possibility of deconsolidation.
The pressure from the hedge funds has been reported by Reuters and the New York Post. The news agency first noted that H G Vora bought 4.9 percent of Caesars with the intention of pushing for divestitures or sale of the company. Then, the Post reported that Starboard Value bought $500 million of MGM Resorts stock joining other activist shareholders with similar thoughts. The funds might also propose merging MGP Properties and VICI Properties, the REITS spun off from MGM Resorts and Caesars.
Talk of divestitures comes just as Caesars and MGM are doing the opposite. Caesars is about to close on the $1.7 billion purchase of Centaur, which owns two Indianapolis area racinos, and is reportedly interested in purchasing the five Jack casinos in Ohio, Detroit and Baltimore. MGM just agreed to buy operating rights at Rocksino, the former Hard Rock-owned racino in suburban Cleveland, for $275 million.
So, what might a restructuring look like?
According to the Post, MGM may be urged to sell its Macau properties. If any American companies are thinking of exiting Macau, now might be the time with negotiations of new casino concessions nearing and with the Chinese government perhaps looking for American victims in the growing trade war with the US.
In terms of U.S. divestitures, some possible targets can be identified easily: MGM could sell Circus Circus at the northern Las Vegas Strip, or could decide to ditch Gold Strike and exit the dead-end Tunica market.
For Caesars, there is the Rio, the longest running “it’s for sale” story in American casino history. And Caesars, likewise, could cut some regional properties with no harm.
However, any such actions would just be trimming the edges. They would not, to mix metaphors, be the needle movers that their institutional investors would want.
More serious approaches would be for MGM to part with its half of CityCenter in Las Vegas or for Caesars to sell groups of regional casinos.
Neither appears to be in their plans today. MGM is still Las Vegas Strip centric and Caesars is still the big regional casino operator.
However, if serious restructuring does come, the necessary ingredients exist: able buyers facilitated by REITs.
Boyd has long wanted to return to the Las Vegas Strip. Penn National has already gained Las Vegas experience with the M and Tropicana and could be ready for a bigger move. Eldorado, likewise, might want to find its place on the Strip.
Who knows, maybe a private operator like Jack, rather than selling, would find allure in being in Las Vegas.
The REITs might have motivation to help the process. They need to diversify their portfolios of tenants. The sale of Rocksino gaming operations by MGM Growth Properties to its majority owner MGM Resorts doesn’t help MGP diversify.
The REITs should be eager to lease properties to other companies and breaking up their parents would create that opportunity.
The landscape among publicly held casino companies might be unchanged a year or two from now if MGM and Caesars stick to their current strategies.
But with activist investors asserting themselves, there are other possibilities.
