VICI Properties shot down MGM Growth Properties proposal to acquire the real estate investment trust (REIT) of Caesars Entertainment.
MGM Growth Properties (MGP) which is the REIT created by MGM Resorts International in 2015 publicly announced its desire to merge with the company that owns the land under Caesars Entertainment casinos. The company revealed that it sent a proposal letter to VICI’s CEO and chairman to acquire 100 percent of all of VICI’s stocks for $19.50 per share. Based on the 300.3 million shares of VICI, the deal would have gone down close to $5.85 billion.
MGM Eager To Acquire VICI
The reason why MGP was eager to acquire VICI is no secret. MGM Resorts and MGP Chairman James Murren underscored that the proposed merger will create one of the biggest triple net lease REITs that spans an unbelievable portfolio of premiere destination leisure, hospitality, and entertainment assets.
REITs are not subject to federal income taxes because 90 percent of their taxable earnings are all distributed to their shareholders. Murren believes that marrying the two REITs will generate unmatched potential and opportunities for their shareholders. The proposal suggested that MGP will acquire VICI through a stock transaction, although MGM is also willing to pay part of the portion via cash. If VICI went for the all-stock deal, VICI shareholders would have ended up with 43 percent of the new joint company.
The letter was penned by MGP officials James “Jim” Murren and James Stewart and was sent to James “Jim” Abrahamson and Edward “Ed” Pitoniak of VICI on January 5. From the letter, we understand that talks of the merger started in December 2017 and MGM was prepared to iron out the legalities of the merger once VICI gave their nod of approval. MGP was pretty straightforward with their intentions and even set a deadline for VICI and their board. They were given until Jan 8 to respond to the proposal.
Luxury Property Portfolio Of Both Trusts
In October 2017, VICI became one of the largest land owners of gaming, hospitality, and entertainment destinations when it completed its spin-off from Caesars. Under VICI’s diverse portfolio in Nevada are Caesars Palace, Harrah’s Las Vegas, and Harrah’s and Harvey’s in Lake Tahoe. In Atlantic City, VICI owns the land under Bally’s and Caesars. The land of all Harrah’s and Horseshoe resorts throughout the south and Midwest are also owned by VICI, as well as four golf courses operating inside several Caesars-controlled properties.
MGP owns Excalibur, Luxor, Mandalay Bay, Monte Carlo (which is under renovation to become Park MGM), New York-New York, The Mirage, and The Park entertainment district in Las Vegas. They also own the land under MGM properties such as the Beau Rivage in Biloxi and Gold Strike in Tunica, Mississippi, MGM National Harbor in Maryland, and the MGM Grand Detroit in Atlantic City.
VICI Not Impressed By MGP Proposal
VICI has been reluctant to comment on the proposal ever since it was published but weeks after receiving the letter, the trust company has finally made a decision. VICI’s board has decided to shoot down MGP’s proposal, believing they will be able to deliver better results and far superior profits to their shareholders as a standalone company.
In a statement, Pitoniak said “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.”
Three Reasons For Turning Down MGP Proposal
According to sources familiar with the proposal, VICI had three reasons to refuse MGP’s deal: the price per stock offered, MGP’s company structure, and third-party deal opportunities.
The first reason is that on January 5, VICI’s share price stood at $20.20 per share. MGP’s proposed price of $19.50 per share fell behind their current share price.
Secondly VICI was reluctant to subject the company to MGP’s dual-class share structure, where a majority of its stocks at 72 percent is owned by its parent company MGM Resorts. VICI has an independent board and doesn’t employ a multiple share class system where each share class has different voting rights.
The third reason is that VICI’s growth prospects with an independent board gives them a leverage to close future third-party deals. There are also clauses under Caesar’s ownership that would terminate VICI’s right to purchase Harrah’s Las Vegas if the merger goes through.
 

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