Sources say MGM is considering a merger with Caesars.
MGM and Caesars Entertainment are considering forming a partnership.
According to a gaming source familiar with the matter, MGM has contacted Morgan Stanley and legal firm Weil, Gotshal & Manges to investigate the prospect of a massive tie-up.
However, according to insiders, no offer has been made.
According to sources, activist hedge funds have been pressing for an MGM acquisition, as they own nearly a quarter of Caesars’ underperforming stock. MGM is down 15%, while Caesars is down 25% year to date.
These entities, including Canyon Partners, which owns significant shares in both companies, were suspected of being behind the dismissal of Caesars Entertainment CEO Mark Frissora, who announced his resignation last week.
“Everyone knows Caesars is up for grabs without a CEO,” stated a source close to the matter.
Chaney Sheffield, an ex-Morgan Stanley investment banker who oversees Canyon’s accommodation and gaming ventures, is said to be pushing for a casino behemoth, in part to save money on overhead and marketing, according to the source.
“I believe the next three to four months will be exciting,” said a second gaming insider with knowledge of the matter.
MGM and Caesars would hold over half of the hotel rooms in Las Vegas and Atlantic City if they merged their companies. Both states’ regulatory agencies may be concerned about such a high concentration.
MGM has a $30 billion enterprise value (equity + debt) and Caesars has a $22 billion chip value.
Tilman Fertitta’s considerably smaller Golden Nugget casino chain made a buyout bid to Caesars, which they turned down.
Sources say that scenario is ideal for the activist hysteria, with MGM acting as the white knight.
Caesars may find that MGM isn’t the only game in town.
According to reports, if Wynn Resorts keeps its license to build a casino in the Boston area, it may come to the table with an $18 billion enterprise value.
According to sources, the Genting Group of Malaysia, which operates Resorts World at Aqueduct Racetrack, and private equity firms with casino licenses, such as The Blackstone Group, could be involved.
According to a source, Caesars is also in talks to buy some of Jack Entertainment’s Ohio casinos, although tax considerations could derail the deal.
Canyon declined to comment beyond stating that it had not signed a confidentiality agreement with MGM.