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LAS VEGAS, Nevada -- The private investment arm of MGM Mirage majority shareholder Kirk Kerkorian announced Monday it would enter negotiations with the company to buy Bellagio and the under-construction CityCenter development.
Shares of MGM Mirage surged in value in aftermarket trading following the news.
In a filing with the U.S. Securities and Exchange Commission, Tracinda Corp. said it wanted to pursue "strategic alternatives" related to its investment in MGM Mirage.
Kerkorian, through Tracinda, owns roughly 56 percent of MGM Mirage.
In a statement, Tracinda, which is based in Beverly Hills, Calif., said the alternatives may include financial restructuring transactions involving all or a substantial portion of the remainder of MGM Mirage.
"Tracinda has made no decision with respect to any such restructuring transactions and reserves the right not to engage in or approve any transaction," the company said in a statement.
Los Angeles-based Kerkorian, 89, founded MGM Grand, the predecessor to MGM Mirage. Kerkorian is on the company's board of directors but has no role in the company's day-to-day operations. Still he is said to have considerable influence over the casino operator's decisions. He helped engineer the company's $6.4 billion buyout of Mirage Resorts in 2000.
A spokeswoman for Tracinda said the company announced its plans in order to be transparent to Wall Street.
MGM Mirage, in a two-paragraph statement, said the company's board of directors, following today's annual meeting, would begin a review of Tracinda's filing and "its implications for the company, and will respond in due course."
The news sent MGM Mirage shares soaring 15.98 percent on the New York Stock Exchange, or $10.06, to $73.01 in aftermarket trading. In the regular session, MGM Mirage shares closed at $62.95, up 15 cents, or 0.24 percent.
Deutsche Bank gaming analyst Bill Lerner said he was surprised by the announcement. The talks, he said, could surround creating additional value for MGM Mirage, which has a current market capitalization of almost $18 billion.
Lerner said Kerkorian and MGM Mirage executives could be looking at the recent $3.8 billion deal in which luxury hotel operator Four Seasons is expected to taken private by a group that includes the company's chief executive officer, Microsoft Chairman Bill Gates and Saudi Prince Alwaleed Bin Talal.
"By dramatically changing the business model, it might be a way of improving value," Lerner said. He thought the deal might include Kerkorian's Tracinda taking ownership of Bellagio and CityCenter, with MGM Mirage operating both properties under a management contract.
"The market values management fee-based contracts rather than ownership on a relative basis," Lerner said.
The only question in any potential deal is what would happen with Tracinda's significant MGM Mirage holdings, Lerner said.
Some analysts thought the move might be an initial step to MGM Mirage going private, similar to recent private equity deals involving Harrah's Entertainment and Station Casinos.
"Las Vegas is fast becoming a hot spot for anybody with an 18-wheeler full of cash," said Joseph Weinert, an analyst with industry consultant Spectrum Gaming. "And Kirk Kerkorian evidently wants to park his big rig on the southwest side of the Strip."
Susquehanna Financial Group analyst Robert LaFleur said, "It's a public declaration by Tracinda that they think the stock's undervalued."
"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," he said.
Last year, Kerkorian tried to acquire an additional 15 million shares of MGM Mirage and increase his ownership stake in the company to 62 percent, but he was only able to pick up 445,000 shares. His current ownership stake is 158.8 million shares.
Bellagio, which was built by Steve Wynn for Mirage Resorts at a cost of $1.6 billion, is considered one of the Strip's highest of high-end luxury resorts.
The $7.4 billion CityCenter is under construction next to Bellagio on 76 acres and is expected to open 2009. It's considered the largest private construction project in history.
CBS MarketWatch and The Associated Press contributed to this report.
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