Kerkorian Moves on MGM

Tracinda Corp, the investment arm of billionaire investor Kirk Kerkorian, said it plans to enter into negotiations with MGM Mirage Inc to buy its Bellagio Hotel and Casino and CityCenter properties.

Shares of MGM Mirage jumped 16 pct in after-hours trading.

Tracinda also said in a filing with the US Securities and Exchange Commission that it wants to pursue “strategic alternatives” related to its 56 pct stake in MGM Mirage.

Those alternatives may include a financial restructuring involving all or a significant part of the rest of the company, Tracinda said.

MGM shares jumped 10.30 usd to 73.25 usd in extended trading after closing up 0.15 usd to 62.95 usd in the regular session.

Bellagio is the jewel in the crown of MGM Mirage's Las Vegas Strip properties, accounting for about 20 pct of its operating profits, while CityCenter is its 7.4 bln usd megaresort being built next door and set to open in late 2009.

While Tracinda owns a majority stake in MGM Mirage and Kerkorian sits on the board of directors, his intention through the filing was to be as open as possible with shareholders and analysts, according to a person close to the matter who was not authorized to speak publicly and insisted on anonymity.

Analysts said the move was made to take advantage of the intense interest in Las Vegas from private equity firms looking for rising real estate values and properties with steady cash flow. It could also signal the piecemeal sale of the casino company that grew to become the world's second biggest through its acquisition of the Mandalay Resort Group in 2005.

Last week, New York property developer Elad Group said it would spend 1.2 bln usd acquiring a 34.5-acre site that now houses the cowboy-themed New Frontier hotel-casino, nearly doubling the recent per-acre price for land on the Strip. It said it would demolish the site and invest in total 5 bln usd on a multi-use casino and residential complex.

MGM Mirage's two high-end properties are now valued at about 10 bln usd, analysts said, roughly equivalent to the value of Tracinda's 158.8 mln shares at the market's close. The offer is a sign Kerkorian believes they are worth more, they said.

“He's obviously seeking to monetize his investment in this company,” said Susquehanna Financial Group analyst Robert LaFleur. “It's a public declaration by Tracinda that they think the stock's undervalued.”

Deutsche Bank analyst Bill Lerner said the offer could make MGM Mirage a stronger company by taking key real estate off its books and allowing it to operate as a management company.

“The Bellagio has been the crown jewel of the portfolio. You wouldn't want to bifurcate that from the system,” Lerner said. “This way, the company could be selling the real estate, maintaining management and getting paid more for the new structure in terms of valuation.”

Besides MGM Mirage's several properties on the Strip such as Mandalay Bay, Luxor and New York-New York, it has a 50-50 stake in the Borgata in Atlantic City, New Jersey, and an equal amount in the 1.1 bln usd MGM Grand Macau set to open later this year. It also has properties or investments in Mississippi, Michigan and Illinois.

Last month, the company said it had assembled a 78-acre site further north of the Strip in conjunction with its Circus Circus property and was looking for third parties to help it develop a megaresort there. Observers said the market is ripe with interested investors.

“Everything's in play today,” LaFleur said. “Debt is available in immense quantities at very cheap prices. The market is awash in liquidity and if the public market is not willing to value assets, the private market is ready to step in.”

The move is Tracinda's second toward MGM Mirage in seven months. In November, Tracinda offered to buy 15 mln shares at 55 usd each, offering a 12 pct premium to the previous day's closing price, but shares promptly shot above the mark and traded consistently higher, so the effort fizzled.

In the filing, Tracinda noted that it may forgo negotiations regarding the remainder of the company, saying it “has made no decision with respect to any such restructuring transactions and reserves the right not to engage in or approve any transaction.”

MGM Mirage's annual shareholders meeting is Tuesday. After the regular meeting, the board “will begin its review of Tracinda's filing and its implications for the company, and will respond in due course,” the company said in a brief statement.