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Howard Stutz

MGM Mirage to sell stake in Borgata

12 March 2010

ATLANTIC CITY, New Jersey -- Gaming analysts believe MGM Mirage's 50 percent stake in Atlantic City's Borgata could fetch between $400 million and $500 million when the company goes to sell its portion of the casino over the next 18 months.

Market conditions, however, could drive down the price.

The casino operator announced Friday it reached a settlement with New Jersey gaming regulators over its relationship with Hong Kong businesswoman Pansy Ho, MGM Mirage's joint venture partner in Macau. The New Jersey Division of Gaming Enforcement deemed her an unsuitable business partner.

The deal is subject to approval by the New Jersey Casino Control Commission, which will hear the matter Wednesday.

Under the terms of the settlement, MGM Mirage will place its interest in the Borgata and 40 undeveloped acres near the resort in a divestiture trust. The vacant land had been the planned site for a $5 billion resort that MGM Mirage abandoned when the economy nose-dived.

The settlement mandates the sale of the property within 30 months.

During the first 18 months, MGM Mirage will have the right to direct the trustee to sell the property, subject to approval of the Casino Control Commission. If a sale is not concluded by that time, the trustee will be responsible for selling MGM Mirage's interest in the Borgata and related leased land during the following 12-month period.

Oppenheimer gaming analyst David Katz said diminished valuations in Atlantic City could reduce the price MGM Mirage would get for the Borgata. Gaming revenues have declined three straight years in Atlantic City, including more than 13 percent in 2009.

"The announcement of MGM Mirage's settlement with the New Jersey Division of Gaming is a modest positive for the shares based on future liquidity relief," Katz told investors.

Deutsche Bank gaming analyst Andrew Zarnett said the Borgata's value fell because of potential challenges from casinos proposed for Philadelphia, including a $600 million property from Wynn Resorts.

"Management can look to dispose their 50 percent stake in a more favorable capital market environment, given the 30-month time period as proposed in the settlement agreement," Zarnett said. "We believe that attaining a sizeable valuation for the New Jersey asset was significantly reduced."

Boyd Gaming Corp. owns the other 50 percent of Borgata and operates the resort. The company has right of first refusal on a sale. During Boyd's quarterly earnings conference call last week, Chief Executive Officer Keith Smith said the company would consider buying MGM Mirage's share.

"We will monitor the divestiture process closely and act in the best interest of our company," Smith said. "We are pleased with our 50 percent ownership position in Atlantic City's premier gaming asset and, for us, it will continue to be business as usual at Borgata."

New Jersey gaming officials declined to comment beyond a statement outlining terms of the settlement. In May, the gaming enforcement division asked MGM Mirage to sever its ties to Ho.

"We have the utmost respect for the DGE but disagree with its assessment of our partner in Macau," MGM Mirage Chairman and CEO Jim Murren said in a statement. "Regulators in other jurisdictions in which we operate casinos have thoroughly considered this matter and all of them have either determined that the relationship is appropriate or have decided that further action is not necessary."

Nevada and Mississippi gaming regulators both approved the suitability of Pansy Ho, the daughter of Macau casino kingpin Stanley Ho, who international law enforcement authorities have alleged to be an associate of Chinese organized crime triads. Pansy Ho and MGM Mirage are 50-50 partners in the MGM Grand Macau.

Information behind the state's request has remained sealed but could be made public when the Casino Control Commission considers the matter.

Pansy Ho has said she operates independently of her father, who still operates several Macau casinos.

"Since the DGE takes a different view, we believe that the best course of action for our company and its shareholders is to settle this matter and move forward with the compelling growth opportunities we have in Macau," Murren said.

MGM Mirage is expected to announce an initial public offering on the Hong Kong Stock Exchange and needed closure in New Jersey to move ahead with the plans.

Murren said the Borgata is the most successful property in Atlantic City.

"We expect there will be strong interest in this valuable asset," Murren said.

MGM Mirage will stop doing business as a gaming licensee in New Jersey, but the divestiture trust will retain any cash flows received from the Borgata before any sale.

Under the settlement, MGM Mirage will be permitted to reapply for a New Jersey gaming license beginning 30 months after the completion of the sale.

MGM Mirage to sell stake in Borgata is republished from