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MGM Resorts Is Selling Out

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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.

Trouble ahead
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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Fool contributor Travis Hoium is long Las Vegas Sands and short Las Vegas Sands call options. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 13, 2010, at 4:32 PM, lazzybum wrote:

    LVS has less than 10% of its revenue coming from Les Vegas. Even if Les Vegas is not doing well, it won't change the Singapore and Macau story. Why do you guys at Fool keep on bashing LVS ? Sell your MGM and move your money to LVS. You'll be a lot happier soon.

  • Report this Comment On October 13, 2010, at 5:04 PM, cbotrader wrote:

    I have to agree with you...LVS and WYNN are compelling stories both in the past and into the future.

    Future expansion of casio gaming is inevitable based on the need for sources of revenue by spendthrift governments around the world.

    Regarding casio stocks..."you ain't seen nothin' yet" as they say.

    With that in mind, although LVS might eye expansion, WYNN has the balance sheet and financial muscle to participate in any new opportunity.....but both of these stocks have bright futures....I own LVS under $4 and I have never sold a share. I am also long WYNN just for purposes of disclosure.

  • Report this Comment On October 13, 2010, at 6:13 PM, TMFFlushDraw wrote:


    1. LVS had over 17% of revenue from Vegas last quarter. May fall to 10% in a few years.

    2. Bashing LVS? I simply mentioned they have a casino in Las Vegas. If you didn't notice in the disclosure I am long LVS (although I have sold covered calls and will be called in a few days). LVS has been the second best investment I have ever made.

    I have also written many articles on how successful LVS has been in Asia.

    Fool On!

    Travis Hoium (TMFFlushDraw)

  • Report this Comment On October 13, 2010, at 11:25 PM, CasinoLiar wrote:

    Breaking news that, unexpectedly, Singapore is going to allow it's currency to strengthen. At first I thought, cha-ching for LVS stock since the stronger currency will buy more dollars and boost earnings in dollars.

    But now that I think about it, this is bad for LVS because most gambling in Singapore is done by tourist who have to first convert their currency into the local dollar, of which they'll get fewer as the local dollar strengthens. Not to mention that if the local dollar strengthens then tourists' money won't go as far on everything else they do on their visit to Singapore- lodging, food, etc.

    I hope the masses first misinterpret this news as bullish for LVS so I can get out at a higher price tomorrow morning and get back in at a better price after the inevitable pullback on this news. Still, the currency isn't going to go up quickly and kill the exchange rate for tourists, and Singapore isn't the revenue generator for LVS, so the news isn't going to totally tank us tomorrow.

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