MGM MIRAGE SHARES SOAR AS KERKORIAN EXPLORES OPTIONS (UPDATE1)
By Oliver Staley
Bloomberg
May 22 2007
Shares of MGM Mirage rose the most ever on speculation Kirk Kerkorian
may sell his majority stake after the billionaire investor said
yesterday he will consider alternatives for the investment.
Kerkorian’s Tracinda Corp. may split up MGM or turn it into a
real estate investment trust, Steven Kent, an analyst at Goldman,
Sachs & Co., told investors in a note today. Shares of the world’s
second-largest casino company soared $17.03, or 27 percent, to $79.98
at 1:57 p.m. in New York Stock Exchange composite trading.
"Everything is on the table," Kent said. "The Tracinda filing
effectively leaves the door open for any number of transactions."
Tracinda, Kerkorian’s holding company, said yesterday it intends to
negotiate the purchase of two Las Vegas Strip properties, the Bellagio
Hotel & Casino and the planned CityCenter complex. Tracinda also is
studying options including a "financial restructuring" for the rest
of the company.
"He has a history of buying and selling inside MGM Mirage, and it’s
been to everyone’s benefit," said Dan Ahrens, fund manager of Ladenburg
Thalman Gaming and Casino Fund in Dallas which owns MGM shares. "A
lot of people have been saying that MGM was undervalued."
Three Sales
The 89-year-old Kerkorian, the son of an Armenian immigrant
rancher in California’s San Joaquin Valley, has bought and sold the
Metro-Goldwyn-Mayer Inc. movie studio three times since 1970. He
founded the MGM Grand Inc. casino company in the 1980s and acquired
Mirage Resorts Inc. in 2000 for $6.4 billion.
Buyout firms might be attracted to MGM’s real estate and cash flow,
analysts said. Last year, Apollo Management and TPG Inc. agreed to
purchase Harrah’s Entertainment Inc. for $17.1 billion. Las Vegas
real estate prices are soaring, with one property, the New Frontier &
Hotel, selling for almost $35 million an acre last week.
MGM said yesterday its board "will respond in due course."
The company’s net income increased 46 percent in 2006 to $648 million,
led by a 17 percent jump in revenue. Its stock price has gained eight
straight years, and was up 9.8 percent this year before yesterday’s
announcement.
MGM Mirage, valued on the stock market at $17.8 billion at the end
of U.S. trading yesterday, has 760 acres on the Las Vegas Strip and
10 casinos, including the Luxor and Mandalay Bay.
Bellagio’s Profit
The Bellagio had earnings before interest, taxes, depreciation and
amortization of $478 million in 2006, the highest on the Las Vegas
Strip, according to Jefferies & Co. analyst Larry Klatzkin. That’s
better than the $361 million of the Venetian, owned by Las Vegas
Sands Corp., and the $333 million of the Wynn Las Vegas, owned by
Wynn Resorts Ltd.
The perceived risk of owning MGM’s bonds rose to the highest in
more than six months. Credit-default swaps based on $10 million of
the company’s bonds jumped $29,000 to $184,500, according to CMA
Datavision. An increase in the five-year contracts, used to speculate
on MGM’s ability to repay its debt, indicates deterioration in the
perception of credit quality.
The company is building the 66-acre CityCenter, which will include
hotels and condominiums, for $7.4 billion. Casinos in Las Vegas
reported a record $6.69 billion in gambling revenue in 2006, an 11
percent increase from a year earlier, according to the Nevada Gaming
Control Board.
Kerkorian made an unsuccessful $4.5 billion bid for DaimlerChrysler
AG’s Chrysler unit. Cerberus Capital Management LP agreed to take
control of the carmaker last week.