Market struggles to accept MGM $80 offer

Jan 23, 2008 3:20 AM

by Ray Poirier | Just how tough the market has been for traders this January is illustrated by the reaction investors had to a "giveaway" offer from MGM MIRAGE Inc. (MGM) and its partner Dubai World.

In its most recent tender offer, Dubai World said it would purchase up to 10 million shares of MGM at between $75 and $80 per share, a premium over the trading price of the low $70s.

Investors reacted with a yawn.

That’s not the kind of reaction billionaire Kirk Kerkorian, whose Tracinda company owns about 53% of the company’s outstanding stock, expected. Nor were the MGM directors and their partners happy with the response.

They decided it was time to be more forceful. Together they announced that the tender offer would be expanded to include the purchase of 10 to 15 million shares at a price of $80 per share.

Breaking down the offer, MGM explained that the company would purchase up to 8,500,000 shares while Dubai World would purchase up to 6,500,000 shares.

Tracinda Corporation it was said, now owns 153,837,330 shares in the company but would not tender any of these shares to participate in the offer.

The company added that if more than 15 million shares are tendered for the $80 price the purchases would be made on a pro rata basis.

The night before the offer was made MGM shares traded at a level just below $69 each, thus providing a 20% premium to the offer takers. In the immediate period after the offer was made, MGM shares failed to rally, staying in the $70 range.