MGM-Wynn Merger Highly Unlikely

Sat, Jun 13, 2015

Popular television host of “Mad Money” Jim Cramer (l.) set the gaming world on fire recently speculating a possible merger between Wynn Resorts Ltd. and MGM Resorts International. The speculation has been brushed off by both companies. Cramer is known for his bombastic predictions, few of which come true.

The trading and casino world was set abuzz recently when Jim Cramer, host of the CNBC show “Mad Money” speculated a merger could be in the works between MGM Resorts and Wynn Resorts Ltd. The website TheStreet.com, which Cramer is a founder, later reported the same.

Spokesmen from Wynn Resorts and MGM Resorts laughed off the speculation and declined to comment, while the Wall Street gaming analyst community ignored the report. A day after the report came out, shares of Wynn jumped 7 percent, which TheStreet.com credited the report for making happen.

However, the same morning of the report, Joe Greff, J.P. Morgan gaming analyst, pumped out a research report which listed Wynn, with shares under $100 per share, as a greatly undervalued buy. The price was the lowest in over five years. After the first week of June, which saw yet another poor week in Macau gaming revenue, heading straight for the 13th consecutive month of decline, gave the value back.

The year 2000 saw Wynn sell Mirage Resorts to MGM Grand for a hefty $6.4 billion, which came with two iconic, game-changing properties, Bellagio and The Mirage. At 73 years old, it makes little to no sense Wynn would want to expand his company this much. If combined, the mega-company would have a market capitalization of $22.52 billion, with $4.04 billion in annual cash flow. The downside would be the astronomical $19 billion in debt.

MGM Resorts has been doing well as of late, with a manageable $12.54 billion in long-term debt. At the recent annual general meeting of Las Vegas Sands, questions surrounding the merger were brought up to Sands CEO Sheldon Adelson, who simply said the company and investment bankers “have considered all possibilities” but nothing concrete had come of it.

Wynn’s first quarter earnings this year showed revenue fall a staggering 28 percent year over year to just $1.09 billion, while losing $44 million. MGM Resorts, on the other hand, saw first-quarter earnings per share go up 50 percent year over year, beating estimates by 13 cents. Revenue, though, dropped 11.3 percent from the year prior.