Key Highlights

  • PPLI soared on the S&P MidCap 400 after the Wall Street Journal reported MGM Resorts is weighing a Takeover bid.
  • Only a day earlier, People had withdrawn its own proposal to buy MGM's public shares.
  • The Journal reported MGM is weighing a bid, not that a formal offer has been made.
  • Higher borrowing costs could shape how any MGM offer might be structured, if one comes at all.

People (NASDAQ:PPLI) soared on Friday after a Wall Street Journal report said MGM Resorts is weighing a takeover bid for Barry Diller's media company.

A Takeover Headline Lights Up a Mid-Cap

It is not every day that a media company becomes a possible target for a casino giant. On Friday, PPLI, the ticker for People, soared on the S&P MidCap 400 after the Wall Street Journal reported that MGM Resorts (NYSE:MGM) is weighing a takeover bid for the company. Sources differed on the exact size of the gain, but every account showed a strong rally.

The report was a surprise twist. Only a day earlier, People had withdrawn its own proposal to buy MGM's public shares.

Who Is People

People is the digital and print publishing group controlled by media mogul Barry Diller. It is the company formerly known as IAC, and it owns a stable of well-known brands, including People magazine and a range of lifestyle and information websites. It has also long been a major Shareholder in MGM Resorts, the Las Vegas casino and hotel operator.

That existing relationship helps explain why the two companies keep turning up in the same headlines. People had proposed buying the MGM shares it did not already own. When that plan was withdrawn on Thursday, MGM shares tumbled. Then came the Journal's report that MGM was considering turning the tables.

Why Takeover Reports Move Shares

When investors hear that a company might receive a bid, they often buy the shares in anticipation of a premium. Acquirers usually offer more than the current Market Price to persuade shareholders to sell. That is why a potential target's stock can jump sharply on even an early-stage report.

It is important to be clear about what was reported. According to the Wall Street Journal, MGM is weighing a bid. That is not the same as making one. Talks can stall, terms can change and deals can fall apart. Neither company had announced a deal in the reports cited. Shares that jump on takeover talk can also give back gains quickly if the talk fades, which is why deal-driven moves tend to stay volatile until terms are public.

The Market Around It

The wider market was in a good mood. The S&P 500 closed at 7,743.41, up 39.28 points, and posted a weekly gain. The Dow jumped 478.64 points, snapping a three-week losing streak. The VIX Volatility gauge dropped to 14.87, below 15.

Yet the backdrop for deal-making is complicated by rates. The 10-year Treasury Yield touched its highest since 2007 during the session before settling a little lower, and the 30-year was near its highest since 2004. Higher borrowing costs make debt-funded acquisitions more expensive, which could shape how any MGM offer might be structured, if one comes at all.

Consumer health is another Factor for a casino company. The University of Michigan's consumer sentiment index fell to a four-month low of 48.1. Gasoline near $4.50 a gallon can also weigh on discretionary spending, including travel and leisure.

What to Watch

The key question is whether MGM moves from weighing a bid to making one, and whether People responds. Any official statements from either company, or further reporting, will likely move both stocks. Investors should also track MGM's own share reaction, which was unconfirmed for Friday. On the macro side, next week's PCE price index, ISM manufacturing, JOLTS and nonfarm payrolls could shift yields and the cost of financing deals.