Arkhouse Presses People Inc Board to Buy Back Stock Over MGM Stake
Activist investor Arkhouse has told Barry Diller's People Inc to repurchase at least $750 million of stock, arguing the shares are undervalued partly because of MGM Resorts' depressed price.
Activist investor Arkhouse has urged Barry Diller's People Inc (NASDAQ: PPLI) to launch a stock buyback, arguing the media company is trading well below the value of its assets, chief among them its 26% stake in MGM Resorts International (NYSE: MGM).
In a letter to Diller, Arkhouse managing partner Gavriel Kahane set out what he called a multiple-step plan to create value for shareholders, including the repurchase of at least $750 million of stock and the sale of People's New York headquarters.
Arkhouse puts People's intrinsic value, or net asset value, at around $72 a share, against a current price of roughly $40.90, as reported by Casino.org. The firm says that figure rises to about $86 a share if MGM is valued at the $48.30 per share price People itself previously offered for the casino operator.
"The wider the discount, the more compelling the math," Kahane wrote, adding that the estimated upside implied by those two valuations runs to approximately 72% and 104% respectively against People's current stock price.
People walked away from its $18 billion bid to acquire MGM Resorts in September, citing complexities in closing the deal. The withdrawal fuelled speculation that MGM might instead move to acquire People, a transaction that would have effectively bought out People's stake in the casino company.
Arkhouse said it favoured that outcome. "We believed the prospective acquisition of People by MGM could have delivered meaningful value to shareholders," Kahane wrote, before adding: "In the absence of a transaction, we urge the Board to take immediate, decisive action to address the Company's egregious undervaluation."
MGM chief executive Bill Hornbuckle made clear on the company's third-quarter earnings call last month that MGM is no longer entertaining takeover talks with People in either direction. The two companies have since struck a new voting agreement capping People's stake in MGM at 29.9%, while leaving Diller free to approve a future acquisition of MGM by another party.
Arkhouse is not the only investor pressing the issue. Yakira Capital Management made a similar call in August, going further by telling People to abandon its pursuit of MGM altogether. Yakira argued at the time that People "is not maximizing the use of its assets."
People reported third-quarter results on 2 November, disclosing 12.5 million shares remaining under its existing repurchase programmes. Diller said People's "conviction in MGM is undiminished," even as the company faces renewed pressure from outside investors to return capital to shareholders rather than pursue further dealmaking.