MGM Does Not Share Snow Lake Capital’s Rationale For Reducing Its Control In Asia

Article by : Helen Jan 22, 2021

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Snow Lake Capital, an Asian investment management firm and one of the biggest MGM Resorts International’s shareholders, firmly believes that the company would benefit from reducing some of its Asian control. The backer mentioned in its open letter to the operator’s board of directors that MGM could gain better power in Japan and Macau by transferring more control to the China-based entity. The latter has laid out all the rational reasons for such a shift, but MGM does not seem to believe that the suggestion is well-justified.

Founder of Snow Lake Capital, Sean Ma, pointed out in the letter that being the “largest public shareholder of MGM China” Snow Lake Capital is convinced that MGM would greatly benefit from introducing Snow Lake as a 20% strategic investor in MGM China. Ma assured that the shift would be a great way to diversify Macau’s tourism economy and allow MGM to gain some non-gambling resources. Based on the upcoming changes in the Chinese and Macau gambling law that are supposed to occur by the end of 2021, Ma believes that the offer would maximize MGM’s chances of obtaining a new concession in 2022. More than that, it would also give the company extra resources and funds that could be potentially used for switching its efforts to the integrated resort opportunities in Osaka, Japan. Selling 20% of MGM China would bring the company $1.3 billion, which is enough to become a large investor in the Osaka project.

The large customer base matches very well with MGM Resorts International’s resources in dining, boarding, entertainment and MICE in the U.S. and Japan.

Despite all the advantages mentioned in the open letter, it didn’t take MGM much time to send a politically-correct response saying something like “thanks-but-no-thanks.” The response letter contained the following: “MGM Resorts remains committed to Macau and will continue to take actions that are in the best interests of its shareholders and stakeholders. We appreciate continued constructive engagement with MGM China shareholders.”

MGM does not complain about the lack of funds or resources, with almost $6 billion on its balance. Being a 56%-owner of MGM China, the company finds it not economical to reduce its stake in MGM China. It was also recently reported that MGM is interested in buying Entain. This US sports gambling entity might be a good sign of MGM moving from Asian to American operations. At this point, it makes more sense for MGM not to sell some of its stakes to Snow Lake. In turn, the latter tried to encourage MGM to accept its suggestion, claiming that additional financial resources would allow the company to make a more attractive bid for Entain. However, as was already mentioned, MGM is not desperate for funds.

Amid tense relations between the US and China, it’s still not clear whether MGM will continue insisting on purchasing Entain or not. They say that China might force Macau to stay focused more on the domestic market while reducing its interest in foreign companies. China had previously imposed certain restrictions on overseas gambling, so this might mean that MGM could have hard times in the next year, especially if it wants to proceed with its US intentions. On the other hand, Snow Lake Capital would not be the only backer concerned about the company’s massive control on the Asian market if MGM was considering the idea of giving up with the Entain company. All in all, the response to Snow Lake remains rather straightforward at this point: “Good idea in theory, unrealistic in practice.”