Investors await more word on MGM offer

May 29, 2007 4:58 AM

Kirk Kerkorian stunned the gaming community last week by having his wholly-owned Tracinda Corporation offer to buy the Bellagio Hotel and Casino and the CityCenter development, both owned by MGM MIRAGE Inc. (MGM).

Analysts scurried about trying to place the offer into perspective, but came up with little information.

Exactly what is being offered for the properties wasn’t made known. Nor was it indicated exactly how Tracinda would pay for the properties and who would manage them if a sale were made.

Kerkorian, soon to celebrate his 90th birthday, now owns 56% of the company’s outstanding shares. Some have suggested that he would use his holdings to make the acquisition, although exactly what value would be placed on the two properties remained a mystery.

Bellagio was built by Steve Wynn and was part of the package acquired by Kerkorian and his MGM in 2000. Wynn has since formed Wynn Resorts Ltd. (WYNN), built the $2.7 billion Wynn Resort on the Las Vegas Strip; developed Wynn Macau and plans to open a second Strip property and a second Macau property next year.

The sudden Kerkorian offer sent the shares of MGM skyrocketing, from the $69 level to $80. The share price retreated during the week as many investors took profits.

Unhappy with the offer were the MGM bondholders who saw the bonds fall almost two cents on the dollar.

As one writer pointed out, "no bondholder likes to get private equitized."

And according to Standard & Poor’s rating service, MGM MIRAGE management told investors when it was selling bonds just two weeks earlier that it had no intention of going private. There was no mention of an insider deal.

One analyst suggested that the recent move by an Israeli company to acquire the New Frontier for $1.2 billion, or about $35 million per acre of real estate, prompted Kerkorian to move in an attempt to force investors to better monetize MGM’s real estate holdings. Also, he might have feared that private equity companies might make a move on MGM, such as two firms recently did with Harrah’s Entertainment Inc. (HET).

For now, the matter rests in the hands of three MGM board members — Roland Hernandez, Rose McKinney-James and former Nevada Gov. Kenny Guinn, who joined the board last week. They will be guided by UBS Investment Bank, with James Stewart of its Los Angeles branch in the lead, and the legal firm of Weil, Gotshal & Manges LLP.