Investor Snow Lake urges MGM to sell 20% of China business

Snow Lake Capital Ltd. is urging MGM Resorts International to sell a 20% stake in its Chinese subsidiary MGM China Holdings Ltd. to a strategic partner, saying it is a "win-win transaction" for all parties.

In a Jan. 6 letter to MGM's board, Snow Lake founder Sean Ma said the addition of a "leading Chinese consumer internet or travel and leisure company" as a strategic shareholder in MGM China would increase its non-gaming resources, which is vital in the gaming concession re-tendering in 2022.

The Snow Lake chief investment officer cited Macao CEO Ho Iat Seng's statement that the region will no longer have subconcessions after the agreements expire in June 2022. Ma said the disposal will benefit MGM China as it will trigger a rerating of its stock, which is currently 20% to 30% lower than its local peers, and help secure a new concession.

The transaction could also be instrumental in diversifying Macao's tourism economy, Ma added.

Snow Lake identified Chinese companies Meituan, Trip.com Group Ltd., Huazhu Group Ltd. and Sunac China Holdings Ltd. as potential partners that may help differentiate MGM China as they would bring non-gaming capabilities to Macao post its COVID-19 low.

Furthermore, Snow Lake said the move would provide MGM enough capital to fully commit to its gaming integrated resort project in Osaka, Japan, as the only U.S. operator and give the company flexibility to pursue M&A opportunities in online sports betting and gaming.

Proceeds from the stake sale could also be used to make a more attractive takeover bid for its BetMGM partner Entain PLC, said Snow Lake. The British online gaming operator earlier said MGM's proposed offer of 0.6 of its share for each Entain share "significantly undervalues" the company.

The investment firm is the largest public shareholder of MGM China, owning a 7.5% stake in the company, according to data compiled by S&P Global Market Intelligence.

In response, MGM said the company remains committed to Macao and will continue to take actions that are in the best interests of its shareholders.

"We appreciate continued constructive engagement with MGM China shareholders," the company said in a statement.