by Marian Green
Tracinda looks at acquiring key MGM Mirage properties
Kirk Kerkorian’s Tracinda Corp. is seeking to acquire the Bellagio and CityCenter properties from MGM Mirage, according to a filing made in May.
Tracinda indicated that it also could pursue strategic alternatives with respect to its investment in MGM Mirage, which may include financial restructuring transactions involving all or a portion of the company. Tracinda owns 158.8 million shares, or 56 percent of MGM shares, and attempted unsuccessfully to increase its stake to 61 percent in January.
In a note to investors, Deutsche Bank analyst Bill Lerner discussed the potential deal: “Tracinda could potentially sell some or all of its stake in MGM to purchase the properties, and MGM could unlock underlying value in its portfolio and use the proceeds to pay down debt. Alternatively, Tracinda could explore swapping its shares for the premium assets, and then MGM could retire the stock. We believe that MGM’s longstanding ‘one voice’ relationship with Tracinda is fairly unique, lowering the risk of losing creative control to operate the properties down the line.”
The properties are premier assets, Lerner stated. Deutsche Bank estimates Bellagio could generate $492 million in earnings in 2007, while CityCenter is a $4.7 billion (after condo sales) mixed-use development slated to open in late 2009.
“We believe this could have positive implications for the space, and compel the market to rethink gaming valuations,” according to the investment note. “Historically, casino operators have traded at a discount to traditional lodging companies. However, this type of initiative, along with the increasingly global secular nature of the sector, could work to close the gap.”
The company said its board of directors is reviewing Tracinda’s filing and its implications for the company. “The company is mindful of its obligations, including to its shareholders, lenders, employees and the communities in which the company operates,” according to an MGM Mirage statement.