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Best of Liz Benston

Gaming Guru

Liz Benston
 

MGM Grand in Detroit Draws Suitors

3 December 2004

DETROIT, Michigan -- MGM Mirage said today it may sell its MGM Grand casino in Detroit after receiving several offers from potential buyers.

The company had said it planned to sell the Mandalay Resort Group's stake in the neighboring MotorCity Casino upon the MGM Mirage merger with Mandalay Resort Group. Mandalay owns 53.5 percent of the casino.

Michigan law prevents companies from owning more than one Detroit casino.

"MGM Grand Detroit and MotorCity are both great properties with consistently strong operating results and terrific growth prospects," MGM Mirage Chief Executive Terry Lanni said in a statement. "We initially expected that we would dispose of Mandalay's majority interest in MotorCity. However, since making that initial determination we have been approached by several parties concerning the possible sale of MGM Grand Detroit and we have decided to explore this alternative."

MGM Mirage would keep its share of MotorCity should the company sell the MGM Grand property instead, he said.

The company would anticipate "working closely with Mandalay's partners and the City of Detroit to develop and enhance that property," Lanni said.

The MGM Mirage-Mandalay deal is expected to close by the first quarter of next year. MGM Mirage didn't disclose potential buyers or asking prices.

Jeffries & Co. bond analyst Ray Cheesman said a number of gaming and nongaming companies are likely to bid on the property because opportunities to own casinos in major markets are few and far between.

The buyer will likely be a large company with the means not only to front the purchase price but commit to millions of dollars in investments required by the City of Detroit to transform the "temporary" property into a permanent resort, Cheesman said.

While Detroit businessman and Indiana casino owner Don Barden has expressed interest in getting into his home market, Cheesman said he questions whether Barden has the "economic muscle to pull it off when these other companies muscle in."

Prudential Securities equity analyst Bill Lerner said MGM Grand Detroit could fetch around $1 billion given what private investment companies have paid for "inferior" casino assets in recent months.

Colony Capital LLC recently agreed to pay $1.24 billion for four Harrah's Entertainment Inc. and Caesars Entertainment Inc. casinos across Indiana, Mississippi and Atlantic City.

While gaming giants have recently sold casinos that aren't in the companies' most appealing markets, casinos are still very profitable compared with other industries, with profit margins in the 20 to 30 percent range in some cases, Cheesman said.

MGM Grand in Detroit Draws Suitors is republished from Online.CasinoCity.com.