People Inc. Accepts a 29.9% Cap on Its MGM Resorts Stake in Amended Voting Pact

Barry Diller's People Inc., MGM Resorts' largest shareholder, has agreed to stop buying at 29.9% and to back MGM's board on any sale that meets four conditions. MGM stays free to buy back stock even if that lifts People past the cap.

• MGM Resorts International, People Incorporated and Barry Diller amended their April voting agreement on 27 October, according to an 8-K MGM filed with the US Securities and Exchange Commission
• People, Diller and their affiliates may not buy MGM stock above 29.9%, but a rise caused by MGM's own repurchases is not a breach
• On a change of control they will vote all their shares as MGM's board recommends, if People's directors sit on any deal committee, the buyer is unaffiliated and People is treated like other holders
• People holds 66,822,350 MGM shares, approximately 26.5% according to its latest 13D filing, five weeks after it withdrew its $48.30-a-share proposal to take MGM private
• MGM, which owns half of BetMGM, reports third-quarter results after the market closes on 28 October

People Accepts a Standstill and Gives Up Its Free Hand on a Sale

MGM Resorts International signed the amendment to its 3 April voting agreement with People Incorporated, formerly IAC Inc., and Diller, People's chairman and an MGM director, according to the 8-K it filed with US regulators. MGM's release says the amendment follows People's withdrawal of its acquisition proposal.

The amendment adds a standstill. People, Diller and their controlled affiliates, the Covered Entities, may not acquire MGM shares or derivatives that would take their combined ownership above 29.9%. An increase caused by MGM's own repurchases is not a breach, provided they acquire nothing further while above that level.

For ordinary votes, shares above 25.73% of MGM's voting power were previously voted in the same proportion as other shareholders. They will now follow the majority of shares voted by holders other than the Covered Entities and MGM's directors and executive officers. The 25.73% threshold is unchanged.

On a change of control, the Covered Entities will vote all their shares as MGM's board recommends if four conditions hold: People's designated directors serve on any transaction committee, conflicts permitting; the counterparty is unaffiliated with MGM or its insiders; People receives the same consideration as other holders; and the deal imposes no new restrictions on People. If any condition fails, People's votes are unrestricted. People itself acquiring a majority will not end the agreement as a change of control unless MGM's board approves it as one.

In return, MGM will not adopt a rights plan or other defensive measure aimed at People while it complies, with carve-outs for proxy contests and for buyers of a significant stake from People. There is no lock-up, but People must give four business days' notice of such a sale. The agreement, which has no fixed end date, still terminates if People's group falls below 17.5%, if MGM's board fails to nominate two People designees, or on a change of control. Diller is deemed People's designee.

A Withdrawn Bid and a Buyback Programme

"This agreement provides the Board with a clear path to maximize value through share repurchases and a change of control transaction, if applicable," MGM Chairman Paul Salem said; the release adds that no transaction is contemplated. People's own 8-K gives no reason.

People proposed on 1 June to buy the shares it did not own for $48.30 in cash, and its letter said it had no intention of voting for a change of control to another party. On 23 September MGM said People had withdrawn after negotiations with a special committee, and Diller said People remained "open to and interested in the possibility of a strategic transaction".

IAC disclosed 59,033,902 MGM shares, or 12.0%, bought for about $1.02 billion in August 2020; Diller and Joey Levin, then IAC's chief executive, joined MGM's board. Later purchases took the holding to 66.8 million shares, which People says cost $1.3 billion and were worth $3.0 billion at 31 July. The percentage more than doubled largely because MGM retired stock: IAC said in May that MGM had repurchased over 48% of its shares since 2021 began.

MGM's second-quarter 10-Q shows 7 million shares repurchased for $253 million in the first half, none in June, and $1.36 billion left under its $2 billion authorisation. BetMGM reported its third quarter on 13 October.

The Cap Is Written Around MGM's Buybacks

On the 251.6 million shares used in People's filing, MGM would have to retire about 28 million, roughly 11% of its stock, before People's unchanged holding reached 29.9%. The cap permits that drift while barring People from adding to it. The April agreement placed no limit on People's own buying; now MGM alone sets the pace.

People Has Swapped an Open Veto for a Conditional Yes

In June People said it would not vote for a change of control to another party. It now commits to follow the board, but only if, among other conditions, it sits inside the process and is treated identically. Where all four hold, a 26.5% holder no longer stands in the way of a board-backed sale. Where they fail, People keeps its full vote, and MGM cannot deploy a rights plan against it while it complies.

Independent Holders Now Steer the Excess Votes

Voting the excess with the unaffiliated majority, excluding management's shares, means those votes amplify what independent holders decide. On the filing's share count the block is under one percentage point, but every share MGM retires enlarges it.

The amendment turns a failed take-private into rules: MGM can keep shrinking its share count, and People cannot buy its way towards control meanwhile. Neither company has said what People will do with a stake that MGM's own buybacks would keep enlarging.