MGM Mirage shares jump on Dubai World deal
William Spain and
CHICAGO (MarketWatch) -- Shares of MGM Mirage were on the rise Wednesday after the casino company said it had inked a $5 billion deal in which Dubai World will ultimately acquire a 9.5% stake in MGM and partial ownership of a massive real-estate project.
Under the terms of the pact, Dubai World, a holding company for the Persian Gulf state, will pay $2.7 billion for a half-interest in MGM Mirage's CityCenter, a gambling, hotel, condominium and retail complex set to open in 2009. At $7 billion and change, it is the largest privately funded real-estate development in history.
Dubai World also plans to buy 14 million shares of Las Vegas-based MGM Mirage MGM, -2.05% from the company at $84 each and a similar number from public shareholders at the same price. The 28 million shares are thus valued at $2.4 billion.
Chief executive Terry Lanni said the deal will be "transformational" for the company, "as big a change as the acquisitions of Mirage and Mandalay Resort Group."
In addition to the financial benefits, which include a significant lowering of the company's long-term debt and access to more capital on more favorable terms, he said the agreement will open vast new markets for the company.
He said the deal "is immediately accretive to long-term earnings and will have a profound impact on our balance sheet" with the investment to "greatly increase our growth and earnings."
Further, "they have access to Russian oligarchs, to people of significant wealth in India and the Middle East that we do not," he said. "We will now be able to market our goods and services to them. It is a great symbiotic relationship."
MGM Mirage is - and will continue to be -- controlled by billionaire investor Kirk Kerkorian, who has long believed the company's stock is undervalued. In May, his Tracinda Corp. said it wanted to enter into talks to buy CityCenter and the luxurious Bellagio casino, a plan he later dropped but not before the stock had soared as much as 31% on the news.
The share-deal price is 13% over MGM Mirage's Tuesday closing price of $74.32. At the Wednesday close, the stock was up almost 9% at $80.94.
After the deal, Kerkorian's stake in MGM Mirage will drop to just under 52%.
While CityCenter is going full-speed ahead, there have been signs that the red-hot Las Vegas real-estate market is hitting a rough patch, most recently evidenced by Columbia Sussex' decision to delay a redevelopment of its Tropicana property due to the high cost of financing.
In a note to investors, Felicia Hendrix of Lehman Brothers wrote that she sees the pact as "a strong positive for MGM as it underscores our thesis that the company's value goes beyond its casino holdings and development projects."
Further, "we believe the company will continue to unlock future value through additional [joint ventures], development relationships and partnerships" while "today's news emphasizes the point that the company's assets, underlying business and business partnerships all transcend the perceived issues that are plaguing the U.S. stock market today."
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