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INVESTOR KERKORIAN STUDIES `ALTERNATIVES' FOR MGM (UPDATE1)
By Oliver Staley
Bloomberg
May 22 2007
May 22 (Bloomberg) -- Kirk Kerkorian, the billionaire who owns 56
percent of MGM Mirage, will consider "alternatives" for his investment
in the world's second-largest casino company and plans to start talks
to buy two of its Las Vegas properties.
Tracinda Corp., Kerkorian's holding company, said yesterday that it
intends to negotiate the purchase of the Bellagio Hotel & Casino and
the CityCenter complex, which is under construction. Tracinda also
is studying options including a "financial restructuring" for the
rest of the company.
"This will put them in play," said Matt Sodl, an investment banker
with Los Angeles-based Innovation Capital LLC. "It's a very aggressive
move."
The company said its board will consider Kerkorian's announcement
after the MGM annual shareholders' meeting today. Tracinda, in bidding
for the Bellagio, is pursuing the "jewel in MGM's portfolio," Robin
Farley, an analyst at UBS Securities LLC in New York, said in a note
to clients yesterday.
MGM shares jumped $15.25, or 24 percent, to $79.20 as of 8:05 a.m. in
New York. Kerkorian in November tried to buy as many as 15 million
additional MGM shares, or a 5.3 percent stake, for $55 each. He
eventually bought less than 1 percent as prices soared. His stake is
now valued at $10 billion, almost double its value in August.
Buyout firms may be attracted to casino companies' 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.
Buying, Selling
MGM said 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.
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.
MGM Mirage, valued on the stock market at $17.8 billion at the end
of U.S. trading yesterday, owns 10 casinos, including the MGM Grand
Las Vegas and Mandalay Bay, and 760 acres on the Las Vegas Strip.
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.
Record Revenue
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.
Shares of other casino companies with a presence on the strip rose.
Wynn Resorts Ltd., founded by Steve Wynn, added $4.06 to $98.25. Las
Vegas Sands Corp., run by billionaire Sheldon Adelson, increased
$2.59 to $78.50.
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.
To contact the reporter on this story: Oliver Staley in New York
at [email protected]
By Oliver Staley
Bloomberg
May 22 2007
May 22 (Bloomberg) -- Kirk Kerkorian, the billionaire who owns 56
percent of MGM Mirage, will consider "alternatives" for his investment
in the world's second-largest casino company and plans to start talks
to buy two of its Las Vegas properties.
Tracinda Corp., Kerkorian's holding company, said yesterday that it
intends to negotiate the purchase of the Bellagio Hotel & Casino and
the CityCenter complex, which is under construction. Tracinda also
is studying options including a "financial restructuring" for the
rest of the company.
"This will put them in play," said Matt Sodl, an investment banker
with Los Angeles-based Innovation Capital LLC. "It's a very aggressive
move."
The company said its board will consider Kerkorian's announcement
after the MGM annual shareholders' meeting today. Tracinda, in bidding
for the Bellagio, is pursuing the "jewel in MGM's portfolio," Robin
Farley, an analyst at UBS Securities LLC in New York, said in a note
to clients yesterday.
MGM shares jumped $15.25, or 24 percent, to $79.20 as of 8:05 a.m. in
New York. Kerkorian in November tried to buy as many as 15 million
additional MGM shares, or a 5.3 percent stake, for $55 each. He
eventually bought less than 1 percent as prices soared. His stake is
now valued at $10 billion, almost double its value in August.
Buyout firms may be attracted to casino companies' 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.
Buying, Selling
MGM said 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.
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.
MGM Mirage, valued on the stock market at $17.8 billion at the end
of U.S. trading yesterday, owns 10 casinos, including the MGM Grand
Las Vegas and Mandalay Bay, and 760 acres on the Las Vegas Strip.
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.
Record Revenue
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.
Shares of other casino companies with a presence on the strip rose.
Wynn Resorts Ltd., founded by Steve Wynn, added $4.06 to $98.25. Las
Vegas Sands Corp., run by billionaire Sheldon Adelson, increased
$2.59 to $78.50.
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.
To contact the reporter on this story: Oliver Staley in New York
at [email protected]