Kirk Kerkorian mulls reducing MGM MIRAGE stake

Oct 20, 2009 6:56 PM
Staff & Wire Reports |

Billionaire investor Kirk Kerkorian (pictured) said Tuesday he is considering cutting his stake in MGM MIRAGE (MGM), whose earnings are being hammered in real estate downturn, as the casino company said it will take a nearly $1 billion charge because it had to slash condo prices at its CityCenter development.

Tracinda, Kerkorian's investment vehicle, said it is "exploring the possibility of strategic partnerships or other alternatives" for its 37 percent stake in MGM.

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However, Tracinda also said in its statement that it will not engage in a transaction until its CityCenter development in Las Vegas is complete. CityCenter, a 50-50 joint venture of MGM and Infinity World Development Corp. a subsidiary of Dubai World, is a 67-acre (27-hectare) project that includes a 4,000-room casino-resort, condominiums, convention space, hotels and a retail mall. The development, slated to open in December, has been plagued by delays due to MGM's heavy debt load. Adding to MGM MIRAGE's troubles, people have been gambling less during the recession.

"Tracinda believes there is substantial unrecognized value in MGM MIRAGE and CityCenter that is not reflected in the market value of MGM MIRAGE's stock," the company said in a statement.

This isn't the first time Tracinda has signaled that it might seek alternatives for its MGM stake, but this time, investors are more likely to believe something will happen, BMO Capital Markets analyst Jeffrey Logsdon said in a note to clients.

"We think the market is more likely to believe the probability of a transaction is higher than other times given the decline in the equity stake held by Tracinda as the company has recapitalized in the wake of its liquidity needs," Logsdon said.

Kerkorian's disclosure that he is mulling alternatives came minutes after MGM's announcement that it will take a nearly $1 billion charge against third-quarter earnings because it had to slash condo prices at CityCenter — in some cases by as much as 30 percent.

"Investors have long expected (and will probably expect further) write-downs of the carrying value of its residential towers at CityCenter, especially after it reduced unit pricing by 30 percent or so,"Logsdon said. "We do not expect investors to have a negative reaction to this step."

CityCenter is expected to recognize a third-quarter, $348 million non-cash impairment charge related to its residential real estate under development. MGM MIRAGE said it will recognize its 50 percent share of that charge, or about $200 million pretax.

MGM MIRAGE share rose 35 cents, or 3 percent, to $12.15 in morning trading.

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