Barry Diller Offers to Buy Rest of MGM in Deal Valued at Nearly $19 Billion

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1:35Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Bloomberg Audio Studios. Podcasts, radio, news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right. It is Monday, which means M &A is in the house right now. And one of the big ones that we're keeping an eye on here is people offering to buy MGM Resorts for$48.30 a share in cash. And for anyone who's wondering, People Incorporated is a company controlled by Barry Diller.

2:22So let's bring in Jody Lurie. She's our senior credit analyst for more on this. Jody, walk us through what this looks like, because this is$48.30 a share in cash. Is there going to be debt involved? Oh, there is going to be debt involved, Scarlett. I will not doubt that by any measure. Now, of course, is the deal going to get done? That's the bigger question. But right now, so People owns 26.1%, and they're planning on increasing that by 24 % in terms of total ownership or 24 percentage points in total ownership. And so they want to own 50.1 % and have other investors own the other amount. Now, if you look at the whole package of that 74 % that's getting acquired, we estimate that's about$8 billion in debt if you exclude the amount of cash that People has on hand.

3:12which is a little over a billion. It's at 1.1 billion. So$8 billion is quite a lot. Now, if you only look at what they're going to buy, it's still a large amount. It's still$4 or$5 billion in terms of leveraging up the company. So we're talking leverage going from mid five times to mid seven times on a least adjusted basis for MGM. And we view this less so as an acquisition by equals more so as an LBO type structure. So really just leveraging up MGM, putting all the debt on MGM and creating a situation in which MGM is private, in which they have more debt on the balance sheet. And it's going to be at odds with, of course, the large leases that they already have, which is about, you know, three quarters of the debt that they have on hand.

4:00As a former banker, I don't like this balance sheet to start with. What's your market telling you, Jody. I mean, how did these guys trade? Yeah. So, Paul, it's one of those names that really frustrates me in general, just because a few years ago, they decided to do a sale lease back of all the U.S. assets. So they got rid of all U.S. assets and instead went into this sale lease back structure, which is basically they pay rent, they pay rent, they pay taxes, They pay all the upkeep and capex and operating costs on the properties, but they're a tenant. And so you look at that and you say, well, wait a minute, what's the benefit of that?

4:41These are long-term structures with a few parties and you're paying constantly. Now, it is a little bit cheaper in theory than borrowing debt all the time, but it is one of those situations that as a bondholder, you say, okay, if they only have about$5, $6 billion,$7 billion in debt outstanding, but then they have about$29 billion or$25 billion, excuse me, in operating leases, you're not really a big fan of that. And so this is a company where from a business perspective, it's really fantastic in terms of the reach, in terms of the geo structure that they have. I mean, they have buildings in Osaka, you know, they have buildings, obviously they have MGM China, which is based in Macau.

5:24They have all throughout the U.S. and a really big stronghold in Vegas. But then you just throw on those operating leases. And as a bond holder, you can never get comfortable. But even more so now when it's going to get levered up. And so the bonds are just widening. Jodi, what's going on in the casino sector? We had you on last week when we talked about Fertitta Entertainment buying Caesars. And now you have Peoples buying the chunk of MGM Resorts it doesn't already own. What's happening in the casino business fundamentally that is causing or that is triggering all this M &A? So, Scarlett, I think we're in a little bit of a late stage indication from a credit cycle perspective, if I had to opine on it, just because you only see these sort of scenarios in these later stages, right?

6:09That's when the LBOs happen. We also have the political situation where things are a little bit more lax at the DOJ and the SEC. And so that also opens the door to these acquisitions getting done, even being a possibility. But for gaming in particular, it's sort of interesting because we also have the prediction markets, which of course have created all sorts of waves in the industry in terms of the digital side of things. So that online gaming sports betting component has been a big sort of avenue for growth for a lot of these companies, where it's really just, you know, otherwise not really a very exciting industry.

6:43And the prediction markets is definitely shaking it up a little bit in the U.S. and causing questions of what's the next growth story. So it's not really so surprising that these investors are coming in and saying, hey, I can do a better job, particularly investors that are already smart in the industry. They've already been involved in it in some sense or involved in related industries in some sense. So we're not surprised as much as we are intrigued and concerned for creditors. Stay with us. More from Bloomberg Intelligence coming up after this. At Brookfield, we invest in the thing behind the thing behind the next big thing.

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9:33You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk about our good friends at Berkshire Hathaway. Matthew Palazzoli, he joins us here from Bloomberg Intelligence. He covers all the insurance companies, including Berkshire Hathaway. Berkshire Hathaway in the market again here for a deal. So what is Taylor Morrison and what does somebody as a Berkshire shareholder think about this deal? So you may or may not recall, I was in here a couple of weeks ago and I had said what I would like to see Greg Abel do is hit some doubles and singles, perhaps.

10:17I think this is exactly in line with that. So Taylor is a home builder. Berkshire owns the biggest offsite home builder in the country. What does off-site home builder mean? So they build the house and then they bring you the house. So when I was at the annual meeting in May, they literally had houses inside of the convention center. And those houses are more on the affordable end. This is a vertically integrated company. They're a company they own, Clayton. So they do it from beginning to end. They sell the house. The houses are maybe around$200 ,000. dollars. This company they're buying fits very nicely with it because they're an on-site builder of more higher-end homes.

11:00So it's complementary to the business that they have. They're not paying too much. It's$8.5 billion. That's about 2 % of their$373 billion cash as of March 31st. And the valuation, these stocks have been beat up, as you might have guessed. So the valuation's down. I think I'm not a homebuilder analyst, but Taylor was underperforming peers. And I don't think Berkshire mines that all that much to get it at probably a discount to its historical valuation. And one thing that analysts point out is the fact that Greg Abel said that they want to over time unify our site built home building operations into a combined platform with this new purchase of Taylor Morrison and combine it with Clayton Homes.

11:43This is a different strategy, isn't it from Berkshire's usual approach of letting acquisitions run on their own under their own branding? Yeah, no, that's a good thing to point out, Scarlett. They typically, Berkshire does not ever talk about synergies or use that as any kind of justification for ever buying something. But Greg Abel did specifically know, so Clayton, they do the business where they build a house and they bring you, they have a smaller business where they do build it on the site. And they were building that, pun intended, over time through acquisitions. So what Abel saying is we're going to take that business and probably fold it into the tailor business.

12:19And it's probably a better run through them. Also, by the way, Berkshire owns a ton of manufacturing component businesses. So Paul, you probably have the Benjamin Moore seafoam in your in your shore house. That's a Berkshire Hathaway product, right? They do flooring, installations, all kinds of companies. Again, they don't talk about like having synergies here but there's definitely some opportunity to so they control a lot of the supply chain yeah and taylor it while uh clayton is vertically integrated taylor buys from suppliers what's the cadence of acquisition activity for berkshire hathaway do they like to do one a year two a year one just opportunistic you know that you know the answer to that paul they're going to do it when they see it in the market they don't there's no timetable there's no um you know we have to do it we have to deploy cash in any way.

13:11They preach patience over anything. So I think it's, you know, when we see the deal, we do it. In the note we put out today, we do have the deals and capital deployment that they have done over time. And it is, I think, more than you'd realize. They spent $12 billion on Google stock in the first quarter, which is bigger than this acquisition. We look at Berkshire Hathaway shares and they've kind of underperformed, down 5.6 % this year when the S &P is up about 11%. Does this kind of deal help Berkshire make up some of that gap? Probably not. I don't think so. I think this is probably able building investor confidence over time.

13:51I mean, I think that the leaving of Warren Buffett really left a hole in the hearts and minds of people investing in the company. And I think that needs to be rebuilt. I think, ironically, Berkshire's the kind of proto-anti-AI trade. You know, they have all the hard assets, they have the financial business and the insurance. Should you see the AI trade kind of sell off, it would be the natural company that I would think would benefit from that. But even in the times where that has happened earlier in the year, it hasn't really over-performed. Stay with us. More from Bloomberg Intelligence coming up after this.

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16:44You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. NVIDIA is entering the PC market with this new RTX Spark Superchip. It's, of course, causing repercussions across the chip space. We see Intel shares, AMD shares decline. Of course, they are competitors. Let's bring in Mandeep Singh, our global tech research head here at Bloomberg Intelligence, for more on this. So, Mandeep, Jensen Huang made the announcement in Taipei at an industry conference.

17:22How big a deal is this that NVIDIA is entering the PC market? Well, PC is a saturated market. You know, when you think about the PC market, 250 million units a year grows probably low single digit. So it's not that exciting compared to some of the other stuff that they've been doing on the server side and the data center side. And the numbers would pale in comparison. I think where they're going with this is they think the physical AI would be a much bigger opportunity. Now, when I say physical AI, it's your robotics, your humanoids and that kind of stuff. And you're not going to be able to do that just by focusing on the server and the data center market.

18:06So they really want to expand into other areas to build that ecosystem where they have a PC footprint. And they just don't want to be the chip provider anymore. That's been NVIDIA's key strategy over the past few years is they will give you all in terms of the CUDA software, stuff on the networking side, rather than just being confined to being a GPU provider. And that's where they're going with this is, look, you guys can run agentic AI on our PCs. Now, granted, their market share would be, you know, low single digit. I don't expect it to really take off and displace Intel or AMD. But what they're trying to prove is the concept that in theory, we can have our own PC and that is what will position us well for that robotics if we choose to go down that road yeah the strategy guy who advised jensen wong to do this he'll be out of a job in 12 months i guarantee it this is why this pcs that's like so 1980s dude i mean we're i'm an ai company just i just want the ai aura that's all i want i don't need to be making anything i don't want people touching my product i just want to be the ai company that is what's got nvidia to where it is now i would argue it has but you look at what they've done on the server side.

19:25Server wasn't a very fast growing market. Suddenly, everyone wants to be in the server market. Why? Because the nature of compute has changed with AI workloads. And with AgentTik AI, we're talking about a very different type of compute than what we are used to seeing on our desktops and laptops. And so from that perspective, if the new interface for agentic AI is conversational and a lot of stuff happens in the background with an agent, then clearly your old PC is not good enough for that. See, Mandeep just doesn't have the technology chops that I do. I can think way out in advance and I don't want to be with the PC.

20:04You are the time guru, Paul Sweeney. Mandeep, put into context first another headline we got on NVIDIA, which is it says Anthropic, OpenAI, and SpaceX are among the first big users of this upcoming microprocessor called Vera CPUs in their data centers. What is this about and how does this fit in with the broader strategy? Yeah, so Vera Rubin, as you know, is their new architecture after Blackwell, what they currently have, and they talked about ramping it to full production in fall. And as part of that, they're really touting the CPU portion of that Vera system that has got GPUs, networking, and everything in terms of an optimized system infrastructure.

20:46So they are saying our CPU, which works very well in this system integrated architecture, will help you deploy agentic AI. And the reason why that stress on CPU is because with agentic AI, the shift from chatbots to agentic AI, the importance of CPU has grown. So they think CPU is a big market and it's an important part of that agentic architecture and And hence why there's stress on CPS. So Blackwell's the current most advanced AI chip. Vera is the next generation one. That's right. Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms.

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24:09You're supposed to have Isabel Lee last hour. In extend, they bait and switched me, put Eric Malchunas in, which was a crushing blow. That was a downgrade for you, wasn't it? That was a downgrade for me. But we got Isabel Lee now, cross-asset reporter for Bloomberg News. She's in our studio. You guys have a big take story out today, Lu Wang, Bailey Lipschultz, and you, Isabel Lee. This SpaceX IPO, this is kind of setting new rules and new norms for the IPO market, is it? Yes, it's just so consequential. It's reorganizing a lot of the parts of the markets. And one of those that it's reorganizing is the stead, quiet world of passive investing.

24:40So because a lot of the companies behind the massive indexes you can think of, the company behind S &P 500, Nasdaq 100, Russell, they're changing and have changed their rules to accommodate mega cap IPOs like SpaceX. They don't really say it's for SpaceX. It's just SpaceX because when companies go public these days, it's their mega companies as opposed to in the past when they're just, you know, a company. Now you scale privately, you raise funds privately, and when you go public, you're just a super giant company. So for the Nasdaq, I think the seasoning period, which you can think of it as the wait time before they add you to the Nasdaq 100, it used to be three months.

25:18They've narrowed it down to 15 days. For FTSE 100, it's five days. S &P is still in consultation, but from 12 months, six months. Right. I mean, it feels like they have to go down that path if everyone else did. Is this a one-time thing where they're changing for SpaceX? Or is this from here on out? Because if the SpaceX IPO goes off without a hitch, then we're also going to see Anthropic and OpenAI list as well. And they too could then potentially join the NASDAQ 100 after 15 trading days. Yes. They never say it's for SpaceX. It's for mega cap companies. So one good thing, it's likely also for Anthropic and OpenAI.

25:50And this isn't unprecedented. In the past, they've also tried to change the rules to accommodate meta, if I'm not mistaken. in 2012 but analysts estimate that for spacex um if the rules apply index funds would have to buy 20 billion dollars worth of spacex shares which is a lot and that could really move the markets and that's not even considering where it will be is it going to be communication is it going to be industrial is it going to be what is it going to be classified yes is it going to be a tech firm so yeah no one knows but it's interesting you mentioned that because i was wondering like what analysts, which analysts on Wall Street will be covering this company?