Terry Lanni fell in love with Dubai a decade ago when he accompanied one of his racehorses to that Persian Gulf state to participate in one of the richest events in thoroughbred racing.
Too bad, lamented the chairman and CEO of MGM Mirage Inc. (MGM) upon his return to the U.S. that because of its Muslim roots there is not gambling there. It would be the perfect site of a Las Vegas-style hotel/casino., he said.
But Lanni’s got to love it more now that the holding company, Dubai World, which received such negative press last year when the company proposed to acquire control of America’s ports, has agreed to put $5 billion into MGM’s coffers.
A gem of an idea was hatched earlier this year when Lanni and South African gaming guru Sol Kerzner agreed to partner in a hotel/casino development on an empty lot north of Circus Circus Hotel/Casino in Las Vegas. When Kerzner took his company private last year, Dubai World took a 30% interest in the company.
After Kirk Kerkorian, MGM’s largest single stockholder, announced to Wall Street that he planned to purchase a half-interest of the company’s City Center project as well as full control of its Bellagio Hotel/Casino on the Las Vegas Strip last spring, the company’s shares zoomed upward from the high $60 level to the mid $80 plateau.
Investors were surprised in June when Kerkorian cancelled his plans and sold off their MGM shares, causing the price to fall back to the high $60s.
While analysts pondered Kerkorian’s move, Lanni was busy putting the finishing touches to the deal that he characterized as probably the single most important factor in preparing for the company’s future growth.
The agreement provides that Dubai will pay $2.7 million for a 50% interest in the City Center complex and will buy $2.4 billion in newly-issued MGM stock at $84 per share.
After an initial run up in the company’s share price to the high $70’s, investors kept buying last week and pushed the price to $83.59 on Friday.
Analysts were quick to jump on board with client recommendations.
Respected analyst Harry Morgan of JP Morgan Securities said he foresaw "further medium to long-term upside from further value-creating ventures and capital management." He maintained his "overweight" rating on the stock.
Fritz Owens of Calyon Securities said he expected the company to go after additional joint ventures and strategic partnerships, predicting more such transactions before the year end.
The Dubai World deal overshadowed another important announcement from MGM Mirage: a structural change whereby all corporate activities, exclusive of CityCenter, the Bellagio and Monte Carlo, will be led by new chief operating officer Jim Murren.
Murren, who left Wall Street as one of its top gaming analysts to join Terry Lanni at MGM nine years ago, is giving up his duties as chief financial officer but retains his title of president.
Heading the remainder of the company is long-time gaming executive and poker champion Bobby Baldwin. His new title is chief of design and development.