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MGM Resorts rises on report of Starboard Value stake

Jeff Smith, chief executive officer and chief investment officer of Starboard Value LP.
Chris Goodney | Bloomberg | Getty Images

Shares of MGM Resorts rose on Thursday after a report that activist hedge fund Starboard Value has built a stake in the company.

Two people familiar with the matter told Reuters that Jeff Smith's New York-based firm is building a stake and that MGM Resorts is aware of the fund's position. Starboard Value did not respond to CNBC's requests for comment while MGM released a statement saying the company doesn't comment on market rumors.

Shares in MGM rose as much as 4.9 percent before finishing the day up 1.4 percent Thursday, giving the company a market value of about $14.76 billion. MGM shares have fallen 17 percent over the past 12 months, though the stock remains far ahead of peers such as Wynn and Caesars Entertainment, which are both down more than 30 percent over the same period.

Bloomberg News first reported on the Starboard Value stake in MGM Resorts.

MGM announced a new cost-cutting plan earlier this month — known as "MGM 2020" — to juice profits by $300 million annually. The company said on Jan. 3 that it hopes to realize $200 million in annualized earnings uplift by 2020, with half of those costs coming from labor cost savings.

"We will continue to work toward cementing MGM Resorts as the leader in sports, following the milestones achieved in 2018 with GVC and the professional sports leagues," CEO Jim Murren said in the Jan. 3 press release.

Murren, who's been chief executive since 2008, added that "MGM 2020 reinforces our commitment to increasing margins and maximizing profitability."

Other activist hedge funds, including Corvex Management, have also built stakes in the company.

"Our argument has been that the shares should trade at a higher multiple than the 10X 2019 EBITDA," Jefferies analyst David Katz wrote in an email. However, "the company needs to become more assertive about driving profit and earnings growth – whether through more aggressive cost cutting or otherwise."

— CNBC's Contessa Brewer contributed reporting.