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Mandalay Execs Sell Out

By Jeff Hwang - Updated Nov 18, 2016 at 10:28AM

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Mandalay's top two executives sell last of $600 million in shares.

Since March 2002, in a blinding flurry of insider sales, Mandalay Resort Group (NYSE:MBG) CEO and Chairman Michael Ensign and Vice Chairman Bill Richardson have dumped more than $600 million worth of stock. Over the past several weeks, both Ensign and Richardson have been selling what is effectively the last of their MBG holdings on a daily basis, with no explanation whatsoever.

Some have speculated that the two are on their way out. According to the Las Vegas Review-Journal, "Ensign and Richardson had told friends in the gaming industry that they did not want to die owning a casino company." Yet Mandalay insists that they're not going anywhere.

But if it's not an exit strategy, then what is it?

It's not diversification. As of last Wednesday's sale, Bill Richardson owned 400,900 shares, or about $16 million. Michael Ensign had a token 25,000 shares, or less than $1 million in stock left. He's probably got less than that today. That means each alone has about $300 million invested elsewhere, and I'm sure their investment portfolios consist of more than just a nice car and a house.

And it's not purely valuation, either. It can't be, because Ensign and Richardson now hold virtually nothing.

The timing is curious, as the Las Vegas Strip -- which accounts for most of the company's profits -- is just beginning to pick up steam. To trump competitors MGM Mirage (NYSE:MGG) and Park Place (NYSE:PPE), the company has invested heavily in its flagship Mandalay Bay, with a new convention center and a promising mall project leaving some investors foaming at the mouth.

Except the stock's not worth drooling over, especially in the absence of a reasonable explanation over the sales.

At 8.8 times trailing EBITDA, the stock looks fully priced. And aside from its South Strip gems -- Mandalay Bay, Luxor, and Excalibur -- Mandalay owns substandard properties in Circus Circus and Slots-A-Fun towards the north side of the Strip. Meanwhile, its other Nevada properties are being pinched by tribal gaming in California.

In Illinois, its jointly owned Grand Victoria boat is at the mercy of an ill-conceived tax plan, and its beautiful Gold Strike property in Tunica, Miss., faces stiff competition.

The company's financing activities are also questionable. Rather than reduce its $3 billion debt, Mandalay has used its cash to repurchase shares and pay an unnecessary dividend. At the same time, it used a convertible bond offering to refinance debt, investing 10% of its outstanding share count in exchange.

How can you pay a $60 million cash dividend when you're issuing stock to refinance debt? Why the insider sales?

Why even worry? It can't be a good sign when your top two executives sell all of their shares, and the stock isn't lucrative enough to warrant a second thought. Just cash in your chips and look elsewhere.

Jeff Hwang can be reached at JHwang@fool.com.

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