Snow Lake Founder Ma Says MGM Letter Prompted by Breakdown in Board Discussions

Posted on: January 8, 2021, 10:40h. 

Last updated on: January 8, 2021, 12:08h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Snow Lake Capital founder Sean Ma said the letter he sent earlier this week to the board of MGM Resorts International (NYSE:MGM) urging the gaming company to sell 20 percent of its equity in MGM China Holdings (OTC:MCHVF) came about after failed talks with the board.

Snow Lake
MGM Cotai in Macau, seen here. Activist investor Sean Ma could be forceful in his approach with MGM Resorts. (Image: Macau Daily Times)

In a Thursday interview with Chinese network 36Kr, Ma didn’t hold back. He said that while he’s open to further discussions with MGM, he could take a more forceful approach if necessary. Snow Lake, a Hong Kong-based asset manager, owns 285.4 million common shares of MGM China, equivalent to 7.5 percent of the shares outstanding, making Ma’s firm the largest institutional investor in the Macau gaming entity.

In the letter, the Snow Lake founder pitches the idea of the Bellagio operator selling 20 percent of its MGM China shares to a Chinese consumer internet or travel and leisure company. The letter further said that such a move would create value for investors in the Macau business while generating cash for the US-based company’s Japan and online gaming/sports betting ambitions.

Las Vegas-based MGM owns 56 percent of the China business, making it the largest shareholder. Pansy Ho, the daughter of the late Macau gaming scion Stanley Ho, is the second-largest investor.

Stalled Talks

On Wednesday, MGM confirmed receipt of Ma’s letter, saying that it remains committed to its operations in the world’s largest gaming center and that it appreciates “continued constructive engagement with MGM China shareholders.”

That may not be enough to assuage Ma. In the media interview, the Snow Lake founder said he made calls to MGM CEO Bill Hornbuckle and deemed the executive’s attitude on the matter of selling part of the China business not positive. Ma also said that MGM could benefit from bringing on a Chinese partner ahead of the 2022 Macau gaming permit renewal process, but he’s concerned the company isn’t taking his pitch on that front seriously enough.

The licenses for MGM Grand Macau and MGM Cotai expire in 18 months, confirming the new tendering process is “quite imminent, however MGM Resorts is not taking this seriously enough,” said Ma.

In the letter to the MGM board, Ma mentions Huazhu Group, Meituan, Sunac China Holdings, and Trip.com as “suitable candidates” for acquiring 20 percent of MGM China and he claims there are more.

“We have spoken to several of them, and they are very interested and willing to discuss further,” he said in the interview. “As a long-term investor, I am firmly optimistic about the long-term development of Macau. In the long run, compared to Las Vegas, I think this market is far from saturated.”

Battle Brewing?

Ma doesn’t go into detail regarding what his next moves would be if MGM continues rebuffing his idea. However, he is clear that it’s not his intent to move the Las Vegas company out of the Macau unit entirely.

Typically, activist investors angle for board seats to better position themselves to affect the change they desire. Ma has a long relationship with MGM China President and COO Hubert Wang and said that if Pansy Ho approaches him about joining the board, he’d be obliged.

For its part, MGM has previously deftly dealt with activist investors, some of which remain on the company’s board. Those market participants pushed the gaming company to cash in on its premium Las Vegas real estate and move to an asset lite model, something they were successful in accomplishing because the company’s Sin City real estate portfolio is now small while its balance sheet is one of the strongest in the industry.