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MGM Mirage (MGM)
Time to Place Bets on MGM Mirage
MGM Mirage's stock had been pretty sluggish recently as Wall Street was not too impressed by the recent financial results at the casino operator along with being under-enthused about the company's expansive ongoing developmental projects. That changed yesterday as MGM's stock opened around 27% higher and briefly even crossed the $80 dollar barrier. It currently trades at $79.68, up over $16 from Monday's closing price of $62.74. And the company's shareholders have one of their own to thank for this - as Kirk Kerkorian, the billionaire financier, who owns 56% of the MGM, disclosed that he is interested in purchasing two of the company's most prized assets. But is that what he really wants now that he couldn't get his hands on Chrysler?
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That news sparked the rally on the basis of the conclusion that Kerkorian has put MGM in play and maybe could even look to take the entire company private by himself. MGM Mirage has interests in real estate, gambling and entertainment and it is the world's second largest gaming company behind Harrah's Entertainment. Tracinda's (the investment vehicle owned by Kirkorian) statement filed with the SEC indicated that it was planning to enter into negotiations with MGM to purchase the upscale Bellagio Hotel and the ambitious $7.4 billion development project that MGM is currently working on - the CityCenter. The latter is widely considered to be the largest privately financed developmental project in the country and is expected to feature condominiums, a luxury hotel and gaming facilities. It is being constructed on the Las Vegas Strip. Tracinda's statement also implied that it was considering "strategic alternatives" for its stake in MGM leaving the exact wording of the statement intentionally vague.
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MGM Mirage announced yesterday that it has put together an independent committee to study Tracinda's proposal. Most analysts on Wall Street have differing opinions on how this thing will ultimately play out. Of course, it is every unusual for a majority shareholder to bid on two prime assets of the company that he/she has a stake in. Kerkorian is in a situation where he is bidding against himself. If he is successful in his stated mission of purchasing the Bellagio and CityCenter from MGM, not only will the price be steep considering the run-up in the stock, he will also have to deal with conflict of interest situations. Allegations are sure to pop up from the rest of the MGM shareholders that he is buying the two properties on the cheap. MGM management will be in a situation in which they have to make sure that they get a fair price for the Bellagio and CityCenter but the person they are negotiating with owns a majority of the entire company to start with and is essentially their boss.
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So why is Kerkorian doing this? One possible explanation could be that he has no interest in buying the two properties or MGM. Instead, he is trying to create the impression that the entire MGM or atleast a major part of it could be sold and therefore, if anybody else wants a shot at it, they should step in with a bid. Drumming up interest in MGM from private equity firms (which have shown an affinity to the casino industry in recent months) and/or MGM's competitors could see a bidding war break out and Tracinda would be very well rewarded for getting the ball rolling by seeing its 56% stake in MGM appreciate by the billions.
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Special Offer
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Profile |
The Company's principal activity is to own and operate hotel-casinos and resorts through its subsidiaries. The Company operates 11 wholly-owned casino resorts and 50% investments in other two casino resorts. The casino resorts operated by the group include luxury resorts, casinos, golf courses, shopping outlets, thrill rides and amusement zones. Bellagio, The Mirage, New York Hotel and Casino, Prim Valley Resorts, Buffalo Bill's Resort and Casino are some of the hotels, casinos and entertainment resorts that are owned and operated by the Company's subsidiaries. The subsidiaries of the Company also own and operate in Australia and South Africa. In 2004, the Company sold the Golden Nugget Subsidiaries and MGM Grand Australia subsidiaries. As on 09-Jun-2005, the Company owns and operates 24 properties located in Nevada, Mississippi and Michigan.
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