IAC Invests $1 Billion in MGM

Shares of MGM resort international (MGM) soared 25% to $23.79 on Monday after IAC Inter/Active Corp (IAC) bought a 12% stake worth $1 billion in the company. Barry Diller, the IAC chairman describes the investment as “once in a decade opportunity” as the investment will be a win-win for both companies.

Since it completed its spinoff of Match Group in June, IAC has been on the look for cash opportunities. The Match Group spinoff generated $3.9 billion in cash for IAC.

The IAC chairman Barry Diller said in a letter to shareholders that the major attraction for the MGM investment was the resort’s online gaming business potential to grow significantly over the long term. He said IAC plans to become a strategic and long-term partner, and collaboration with MGM will avail IAC the opportunity to venture into the online gaming business.

“Although we would never ‘bet the company’, we know that this is a large bet for IAC,” the management of IAC wrote in a letter. “IAC has always been opportunistic with its capital, and if ever there was a time, this moment is unique.”

The online gaming business has seen a substantial rise in recent years, with more potentials to grow beyond what it is now. Amid the coronavirus restrictive regulations across the country, online gaming has continued to surge. With the easing of lockdown restrictions and the resumption of live sports, fantasy sports betting apps like DraftKings have been performing well.

In addition to Diller’s interest in MGM’s online gaming business, he also sees the possibilities of MGM’s physical resorts picking up fast to pre-COVID levels once the pandemic subsides. Diller believes that the resort’s free cash flow over the next decade will supersede its current valuation.

In MGM Resorts’ comment about the IAC investment, the resort said IAC was a “long-term strategic partner” which they intend to have them join the company’s board of directors.

“IAC’s expertise in growing and expanding brands online is a natural fit for our focus on enhancing the resort experience through curated and personalized offerings, as well as digital enhancements in sports betting and online gaming,” said MGM Resorts CEO Bill Hornbuckle, in a statement. “We welcome their collaboration and are excited at the possibilities it will bring.”

This move veers from IAC’s usual way of investing in other companies, where the company buys up small and private online companies, develop them, put out roll competitors, merge the companies in acquisitions, and finally reap the gains. Diller is known as an aggressive investor and a persistent dealmaker who has an eye for spotting opportunity in chaos. Rather than wait to make the MGM investment after the pandemic ends, he risks making IAC’s biggest investment in such a time as this, describing it as a “large bet for IAC.”

Other analysts and experts like Tom Lee of Fundstrat are also of the opinion that stocks in the casino industry and other similar industries will experience a “monstrous rally” this week.