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Friday, June 11, 1999

"It's better to be approximately right about something than precisely wrong" -- John Maynard Keynes

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MGM Grand Bets on Itself

When it comes to money, MGM Grand (NYSE: MGG) sure seems to know when and where to place its bets. While other hotel and casino operators have been on shopping sprees over the past year, gobbling up each others' properties like so many Las Vegas tourists wolfing down $1.99 prime rib dinners, MGM Grand has had a different kind of acquisition plan -- buying back its own stock. This morning, the company said it will complete the two-step stock repurchase plan it started last year by offering to buy 6 million of its shares at a price of $50 per share in a self-tender offer, bringing the total number of shares repurchased over the past year to 12 million.

Outside of last November's $612 million stock and debt acquisition of Primadonna Resorts, its partner in Las Vegas' New York, New York casino, MGM Grand has used its available cash and operating cash flow to buy back shares. So far, that's turned out to be a winning bet. Since buying back the initial 6 million shares in the first step of the transaction at $35 per share last August, the company's stock had risen to $43 1/8 per share by yesterday's close. That's a 23% return on investment in 11 months, beating the S&P 500 index's 21.7% return with dividends reinvested over the same span.

With the casino industry's fortunes looking much brighter than they did last year at this time, when the effects of the Asian financial crisis were still being felt, MGM Grand is wagering it can again earn another stellar return on its own shares. With operating profits at the company rising at an average compounded rate of 14% over the past four quarters, that may not be a sucker's bet.

News to Go

If it's Friday, it must be time for Business Week's "Inside Wall Street" column. Among the stocks that might get goosed in trading today by the column's speculations are drug company American Home Products (NYSE: AHP) and PC retailer CompUSA (NYSE: CPU), which are both listed as acquisition candidates, and auto parts company SPX Corp. (NYSE: SPW), which may be undervalued.

According to analysts cited by Bloomberg News, financial services giant Bank of America Corp. (NYSE: BAC) may unveil a plan before the end of the month to buy back as much as $7.5 billion of its stock, or roughly 6.5% of its outstanding shares.

Natural gas company Columbia Gas (NYSE: CG) said its board has rejected an unsolicited $68 per share cash takeover offer from natural gas, water, and electricity distribution company NiSource (NYSE: NI) because the price is "inadequate." NiSource made the offer public on Monday after Columbia's management had already dissed the company's bid in private.

Global Sports (Nasdaq: GSPT) said it will reorient its business to focus solely on operating the e-commerce businesses of sporting goods retailers such as The Sports Authority and The Athlete's Foot. In conjunction with the decision, Japanese information keiretsu SOFTBANK will acquire a 30% stake in the company for $80 million.

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Brian Graney (TMF Panic), Writer
Jennifer Silber (TMF Amused), Editor