Diller's $18B MGM bid faces legal scrutiny over conflict of interest

Barry Diller's $18 billion bid to acquire the remainder of MGM Resorts International faces a shareholder investigation over potential conflicts of interest tied to his dual role as bidder and board member.

"Because Diller stands on both sides of the proposed deal, these facts create conflicts of interest under Delaware law," Bleichmar Fonti & Auld LLP said in a July 13 statement announcing its investigation into the transaction.

People Inc., the investment company Diller founded and controls, offered $48.30 per share in cash for the 73.9% of MGM it does not already own — a 24.1% premium to the stock's 30-day volume-weighted average price and more than 30 percent above the 90-day VWAP. The bid values MGM's equity at roughly $18 billion. People Inc. currently holds 26.1 percent of the casino operator's outstanding shares and, under a governance agreement, has the right to designate two MGM directors.

The investigation introduces uncertainty around a deal that already faces regulatory hurdles. MGM executives declined to discuss the proposal before Nevada gaming regulators on Wednesday, and the transaction would require approvals from both state gaming authorities and antitrust regulators. If the deal is delayed or blocked, MGM shares could fall from the offer price; if cleared, shareholders may receive the full $48.30.

Diller, who also serves on MGM's board, owes fiduciary duties to the company and its stockholders under Delaware law, the law firm said. People Inc. recently entered a governance agreement with MGM that gives it director-designation rights, deepening the conflict. BFA Law said any agreement between MGM and Diller must comply with Delaware's strict requirements for "cleansing" these conflicts and ensuring the deal is fair to MGM's stockholders.

MGM's board said it "will carefully review and consider the proposal to determine the course of action that it believes is in the best interests of the Company and all of its shareholders," according to a June 1 statement. The casino operator has not disclosed whether it has formed a special committee of independent directors to evaluate the offer — a common practice for conflicted transactions.

The bid comes as Diller, chairman of People Inc., has also expressed interest in acquiring CNN should it ever come up for sale, though the Ellison family is expected to be the network's next owner following the closing of Paramount's pending merger with Warner Bros. Discovery. People Inc., rebranded from IAC earlier this year, has been MGM's largest single stockholder since acquiring its stake in 2020.

This article is for informational purposes only and does not constitute investment advice.