MGM Caps Diller Stake at 29.9% After Buyout Bid Ends

MGM Resorts International said Wednesday it amended its shareholder agreement with People Inc. and its chairman, Barry Diller, limiting their combined ownership of the casino operator to 29.9%. People already holds about 66.8 million MGM shares, roughly 26.5% of the company, according to a filing with the U.S. Securities and Exchange Commission.

Under the amended terms filed with the SEC, People and Diller agree not to purchase additional MGM stock if the purchase would push their stake past the 29.9% ceiling. One carve-out applies: if MGM repurchases its own shares, reducing the number outstanding, their percentage could rise above that line without breaching the deal, provided they buy nothing further. In exchange, MGM agreed not to adopt a shareholder rights plan or take other defensive steps aimed at People and Diller while they comply with the agreement.

If MGM is ever sold or taken over, People and Diller must vote their shares in line with recommendations from MGM's board, provided certain conditions hold. Those conditions state the buyer cannot be tied to MGM, and People and Diller must receive the same type and amount of per-share payment as other shareholders unless they agree otherwise. MGM said the agreement does not obligate anyone to complete a deal and that none is under consideration.

MGM board Chairman Paul Salem said the agreement gives the board a "clear path" to raise the company's value, through share repurchases or a sale if one materializes. "We value People, our largest shareholder, and Barry Diller, an MGM Resorts Director, both of whom will continue to help maximize value for all shareholders," Salem said in a statement.

The cap follows the end of People's pursuit of MGM. People signed a voting agreement with MGM on April 3 under its former name, IAC Inc., requiring it and Diller to vote any shares beyond 25.73% of MGM's voting power the same way a majority of other shareholders vote on matters outside a sale or takeover. On June 1, People proposed buying the MGM shares it did not own for $48.30 a share in cash. The offer was nonbinding. Reuters reported it valued MGM at more than $18 billion, while the Wall Street Journal put the equity value at about $12.4 billion.

MGM's board formed a special committee and the two sides negotiated for months before People withdrew on Sept. 23. "We didn't feel the mix was coming together in the way we had hoped and have decided not to pursue taking the company private at this time," Diller said in a statement. People said it remained "open to and interested in the possibility of a strategic transaction with MGM Resorts." The next day, MGM shares fell roughly 11%, CNBC reported. The network also reported the debt the transaction would have created contributed to Diller's decision to stop.

Diller chairs People, the publisher of People magazine, and serves on MGM's board. MGM operates Bellagio, MGM Grand and Mandalay Bay. At noon ET Wednesday, MGM shares traded at $28.42, down 0.28% from an opening price of $28.50.