Dubai World, the state-owned investment company, announced on Wednesday its plan to invest as much as $5.2 billion in MGM Mirage. This strategic move includes purchasing a significant number of shares and acquiring a 50% stake in a prominent Las Vegas project. This investment positions Dubai World as a key stakeholder in the United States’ largest gambling hub.
Following this announcement, MGM Mirage’s shares saw an impressive surge, climbing by up to 10.5 percent. The company’s bonds also experienced a boost, largely attributed to the substantial $3.9 billion cash contribution from the deal and the attractive premium offered by Dubai World for MGM’s shares.
The deal involves Dubai World acquiring 28.4 million shares of MGM Mirage, which amounts to 9.5 percent of the company. This acquisition, worth approximately $2.4 billion, will be from both MGM and current shareholders, excluding shares from Tracinda Corp, owned by MGM’s primary shareholder, Kirk Kerkorian.
In a significant purchase, Dubai World will buy 14.2 million shares directly from MGM Mirage at $84 per share. This price represents a 13 percent premium over the stock’s closing value the previous Tuesday. As a result, Kerkorian’s ownership percentage in MGM will decrease slightly from 54 percent to around 52 percent.
Additionally, Dubai World plans to initiate a public tender offer for another 14.2 million shares at the same price. This public tender is scheduled to commence in the week of August 27.
Moreover, Dubai World is set to invest around $2.7 billion for a 50 percent stake in MGM’s CityCenter project in Las Vegas. CityCenter, a $7.4 billion development spanning 76 acres, includes hotels, condominiums, and retail spaces, and is expected to open in 2009. Dubai World has agreed to pay an extra $100 million to MGM Mirage if the project is completed on time and within budget.
Larry Klatzkin, a financial analyst with Jefferies & Co, commented on the high valuation by Dubai World, noting it reflects a premium for high-quality Las Vegas projects. He suggested this could positively impact other Las Vegas entities like Boyd Gaming Corp, Las Vegas Sands Corp, and Wynn Resorts Ltd.
The completion of the CityCenter joint venture is anticipated by year’s end, with MGM being compensated for managing the development post-completion.
Dubai World described its acquisition as part of a “long-term strategic relationship” with MGM, which is likely to dispel any speculation about a potential takeover of MGM, the world’s second-largest casino operator.
Before this deal, speculation around Kerkorian’s plans, including selling MGM’s Bellagio and CityCenter projects and exploring options for his MGM holdings, had already increased MGM’s share value by 18 percent. However, Kerkorian abandoned these plans in favor of a new resort development on the Las Vegas Strip, in partnership with Kerzner International Holdings Ltd.
Dubai World, overseeing a diverse portfolio for the Dubai government, including the property developer Nakheel responsible for the palm-tree shaped islands off Dubai’s coast, has further solidified its position in global investments with this move.
In the wake of these developments, MGM’s shares were trading up by 9.7 percent, at $81.49, in the New York Stock Exchange. The company’s bonds also saw a rise, with its 7.5 percent bond due in 2016 climbing to 99.75 cents, as reported by MarketAxess.
