CNBC financial gury and show host Jim Cramer recently launched the rumor that MGM Resorts and Wynn Resorts "might merge". The blogosphere lit up with discussions of the subject, while serious analysts laughed off the idea.
Given the prominence of the source and the reaction, several attempts to analyze such a merger appeared. Few people thought the idea made much sense, while all saw a major downside. For instance, multiple analysts pointed out the Wynn/MGM debt would be as big as the debt crippling Caesars Entertainment these days.
Review-Journal Article on the Merger
Last week, though, Howard Sturtz of the Las Vegas Review-Journal and Inside Gaming wrote a column analyzing the possibilities. He pointed out that Steve Wynn sold his cherished Bellagio to Wynn Resorts back in 2000 for a whopping $6.4 billion, but Wynn might want to take control of his crowning development here in his waning years.
TheStreet.com credited the news by Jim Cramer with a recent 7% boost in Wynn Resorts stock, though other reasons exist for the increase. Also, those profits were lost within the week, because of more bad news out of Macau.
Joe Greff's Opinion
Still, people continue to suggest that gaming stocks are undervalued. For instance, Joe Greff, who works as a gaming analyst for J.P. Morgan, says that Wynn Resorts stocks are undervalued and they would present a good buying opportunity. That does not necessarily mean it's time for a buyout, though.
In discussing reasons for such rumors, Sturtz mentioned the bear in the room: the fall of Macau is driving any kind of financial talks these days for MGM Resorts and Wynn Resorts. Both companies are heavily invested in the Chinese gaming market, with casinos on the ground and more in development. But the corruption crackdown by the Beijing government has left Macau with 13 straight months of declining revenues.
Numbers have declined by 40% to 50% from one year to the next, throwing all the prior calculations off. Wynn Resorts' stock prices have dropped below $100 a share for the first time in years.
Spokesmen for the Companies Scoff
MGM Resorts spokesman Clark Dumont and Wynn Resorts spokesman Michael Weaver both laughed at the story. Interactive financial guide Motley Fool made fun of the rumors. Those who provided more than mockery listed off a number of reasons why people should not take the rumors serious.
For one, MGM Resorts and Wynn Resorts have similar portfolios, which often does not make for a complimentary merger. From Las Vegas to Massachusetts to Macau, each has developments in the same parts of the world. The idea does not make as much sense as the proposed buyout of Bwin.Party by Amaya Gaming, which owns PokerStars and Full Tilt Poker. Such a takeover would give Amaya Gaming the world biggest online poker room, along with one of the biggest sports betting operators. That makes sense, because the two businesses would be mutually-supporting. A merger between Wynn and MGM would be redundant, as both units would compete for customers.
Jim Cramer's Information
Also, Jim Cramer failed to say exactly which side would buy the other. Either way, the debt burden likely would be huge. For instance, MGM Resorts has a debt burden of $12 billion. While that is managemeable at the moment, taking-on another $8 billion to $10 billion of debt would be catastrophic, the same way the 2006-2008 buyout of Harrah's Entertainment (now Caesars Entertainment) saddled a company with $20 billion to $30 billion in debt. There is an event horizon when considering a company's debt, and a Wynn/MGM merger likely would push both companies into the black hole of bankruptcy.
Howard Sturtz made his own observation about the CNBC news. He mentioned that Jim Cramer runs the hedge fund, Action Alerts PLUS Charitable Trust Portfolio. Reasons exist for a prominent financial analyst to spread rumors on their TV show, though no one is suggesting Cramer tried to juice his own stock portfolio with a shoutout to a potential merger. It's more likely Jim Cramer needs to fill airtime. Neither CNBC nor Jim Cramer responded to calls for a quote from Inside Gaming.
Steve Wynn in Kazakhstan
Steve Wynn does not appear to be interested in selling his company to an outside buyer, despite trouble from his ex-wife, Elaine Wynn, over whether she should be on the Board of Directors and whether she can sell her stock, if not.
Wynn also does not appear to be getting his ducks in a row for a big buyout. Instead, he's been globe-trotting recently, spending time in Astana, Kazakhstan. Apparently, Steve Wynn was visiting Kazakhstani President Nursultan Nazarbayev, discussing joint ventures in the gaming industry. Perhaps the real news is that Steve Wynn is looking to expand his gaming empire in the Land of Borat.
