October 13, 2010
MGM Resorts (NYSE: MGM ) is making big moves to sell assets and improve its balance sheet, but will it help shareholders in the long run?
MGM Resorts will issue up to 47.14 million shares, which at the offer price of $12.65 would bring in proceeds of around $596 million, minus fees. At the same time, Kirk Kerkorian, MGM Resorts' largest shareholder, will sell up to 32 million shares reducing his stake in the company to 27%. Kerkorian's reduced stake is an about-face because he made a tender offer of $55 per share to buy 15 million shares three years ago. I don't see his loss of confidence in the company as a good sign for MGM Resorts.
MGM Resorts also received an offer for its 50% stake in the Borgata Hotel Casino & Spa. The offer valued the property at $1.35 billion and would net MGM Resorts about $250 million if the sale goes through. Boyd Gaming (NYSE: BYD ) has right of first refusal so there will be some time for it to decide if it wants to exercise that right. MGM Resorts would record a $128 million loss on the Borgata if the sale goes through.
A loss ... again?
On the earnings front, the company announced preliminary loss per share of approximately $0.72 on revenue of $1.56 billion. This includes a further impairment charge on CityCenter of $0.27. It's apparent the positive news coming from Las Vegas last week didn't drive through to MGM Resorts' bottom line. As earnings come through in the next month, we will have to see if weak hotel rates and gaming results at MGM Resorts spread to Las Vegas Sands (NYSE: LVS ) and Wynn Resorts (Nasdaq: WYNN ) as well. Maybe Las Vegas isn't getting healthy after all.
While asset sales appear to be a positive on the surface it could leave shareholders holding the bag in the long run. Just as with the MGM Macau IPO, I'm concerned MGM Resorts will be left with fewer assets to pay for proportionately higher debt. It could be a long few years for the Las Vegas-centric company as competitors focused in Asian markets zoom ahead.
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