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Howard Stutz

Casino shares rise on new bid

27 November 2006

Billionaire Kirk Kerkorian, the majority shareholder in gaming giant MGM Mirage, took steps Wednesday to increase his controlling ownership stake in the company. Gaming analysts, however, did not believe the move was done to take the casino operator private.

The purchases were announced the same day Kerkorian said through Tracinda Corp., his wholly owned investment vehicle, that he was trimming his ownership holdings in General Motors by 14 million shares.

In a filing with the Securities and Exchange Commission, Kerkorian said he was selling a portion of his stock in the automaker for $462 million. The sale will pare his stake in the company to 7.4 percent from 9.9 percent. Shares of GM fell $1.52 or 4.66 percent to $31.09.

Burnham Securities analyst David Healy told The Associated Press that the MGM and GM actions may be related, but Kerkorian likely has the resources to buy the MGM stake without selling GM stock.

Through Tracinda the 88-year-old Kerkorian offered to buy 15 million shares of MGM Mirage at $55 each. The bid, valued at more than $825 million, was 12 percent higher than MGM's $49 closing price Tuesday on the New York Stock Exchange.

If the offer is completed, Kerkorian's stake in MGM Mirage would increase to almost 62 percent. The Los Angeles-based investor currently owns more than 158.3 million shares of the company, approximately 56.3 percent.

In terms of annual revenue among casino operators, MGM Mirage ranks second to Harrah's Entertainment, which is the target of a $15.5 billion private-equity buyout offer.

The announcement, made before the stock markets opened Wednesday, gave MGM Mirage investors a pre-Thanksgiving treat. Shares traded up more than 8 percent on the news. By the end of the day, shares of MGM Mirage closed at $54.21, up $5.21 or 10.63 percent. More than 5.6 million shares were traded, five times above the average daily volume.

Gaming analysts said the move by Kerkorian, who founded the company, was a way to boost both his stake personally as well the company's stock price.

Unlike other gaming companies, the stock price of MGM Mirage has remained somewhat steady over the past few months. Harrah's soared after the private equity buyout offer was announced Oct. 2; the company has yet to act on the offer. Shares of Wynn Resorts Ltd. and Las Vegas Sands Corp. have climbed on news of positive gaming revenues being reported out of those companies' casinos in Macau.

"We strongly believe this does not indicate any intention of a move toward the privatization of the company as Kerkorian has done similar tenders in the past," Jefferies & Co. gaming analyst Larry Klatzkin said in a note to investors.

"We think pre-market trading at $5 up is wrong, and we believe any significant upswing is unfounded," he added.

Bear Stearns gaming analyst Joe Greff called Kerkorian a "shrewd investor" who has confidence in the company's future plans.

MGM Mirage operates 10 Strip casinos and is building the $7 billion Project CityCenter, which includes on its 66-acre site a 4,000-room hotel-casino, high-rise residential, retail and entertainment amenities.

The company also operates casinos in Detroit and Mississippi and owns 50 percent of the Borgata in Atlantic City in a joint venture with Boyd Gaming Corp. In China, the company is spending $1 billion to build the MGM Grand Macau, which is scheduled to open next year.

While Kerkorian was singularly responsible for several strategic MGM Mirage growth initiatives, such as the acquisition of Mirage Resorts from Steve Wynn in 2000, he does not have a day-to-day role in the operation of the company. Nor is he a member of the company's board of directors.

Stifel, Nicolaus Capital Markets gaming analyst Steven Wieczynski said, however, that Kerkorian is key to MGM Mirage's future.

"We do not know if this is the first step in MGM Mirage going private or not," Wieczynski said in a note to investors. "What we do know, however, is that the company will go private if and when Kerkorian decides he would like to go private."

Goldman Sachs gaming analyst Steven Kent thought investors could view the Kerkorian offer as a sign of concern about Project CityCenter's finances.

"Given our previously published concerns about Project CityCenter, this might provide a liquidity event for investors who share these concerns," Kent said in an investors note.

MGM Mirage executives, while not commenting directly on the Kerkorian offer, said the majority stockholder is expressing his support of the overall casino business.

"The gaming industry has never been stronger and we feel that we are the best positioned company in the industry," MGM Mirage spokesman Alan Feldman said. "We gather from Mr. Kerkorian's actions today that he sees value in the company."

Casino shares rise on new bid is republished from