MGM weighs a bid for People Inc, whose 26.5% MGM stake is worth $2.2 billion of its $2.9 billion value

MGM Resorts International is weighing a takeover bid for People Inc, the Barry Diller-controlled media company that is its largest shareholder, The Wall Street Journal reported late Thursday. The report came a day after People withdrew its own $48.30-a-share offer for MGM. The Journal cited people familiar with the matter and said an offer could come in the coming days, according to an Investing.com summary of the report. Neither company has commented publicly.

People shares rose 9.0% to $39.17 in early trading Friday, up from a $35.93 close, according to Nasdaq data. MGM was little changed at $33.575, down 0.3%. MGM fell about 11% on Thursday alone, from $37.845 to $33.69, the first full session after People walked away.

The number behind the report: People is mostly MGM

A casino operator buying the publisher of Food & Wine and Investopedia sounds like a strange fit. The filings explain it. In a Schedule 13D amendment filed with the SEC on Thursday, People reported owning 66,822,350 MGM shares, or 26.5% of the 251.6 million outstanding.

On our arithmetic, the stock market is paying about $670 million for People's entire media business, its more than 40 brands, and its other holdings. Casino.org notes that People's minority stake in the car-sharing company Turo alone has been valued at $1.1 billion to $1.3 billion in private markets. One caveat: this compares stock market values only. It does not count People's debt or cash, which any buyer would take on and which we did not review for this story.

Why MGM might want it

If MGM bought People and retired the MGM shares inside it, its share count would fall from about 251.6 million to about 184.8 million. The same profit spread across 26.5% fewer shares would raise earnings per share by about 36%, before counting what MGM pays for People and how it pays. Cash, new debt or new MGM shares would each eat into that gain. MGM could also sell People's media brands or its Turo stake to recover part of the price, as Casino.org points out.

Who this hits

• People Inc holders are being paid today for the chance that someone finally pays full value for the MGM stake. Some investors have argued that People's share price gives the rest of the company almost no credit, and the table above supports that.
• MGM holders lost a buyer at $48.30 this week. A deal to absorb People would not replace that premium, but a smaller share count would change the per-share math on MGM's earnings.
• Diller said after pulling his bid that he remained open to strategic deals with MGM, according to Casino.org. People's 13D says it may change its investment purpose or buy or sell MGM shares in the future.

What to watch: whether MGM makes a formal proposal, and whether it offers cash or stock. A stock deal would shrink the share-count benefit.

Sources: The Wall Street Journal; Investing.com; Casino.org; People Incorporated Schedule 13D/A (SEC); Nasdaq. Stake value, implied value and share-count figures are Chronicle calculations from those sources. This is market information, not investment advice.