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Kerkorian's Tracinda Ends Talks on Plans with MGM Mirage

The investment arm of billionaire Kirk Kerkorian said it was ending negotiations on the possible purchase of casino giant MGM Mirage Bellagio hotel-casino and its CityCenter project.

The announcement followed one by MGM Mirage that it was entering into a joint venture with Kerzner International Holdings to develop 40 acres of land into a multibillion-dollar casino resort on the northern end of the Las Vegas Strip.

MGM said in its second release that Tracinda, which owns 56% of MGM shares, had informed a meeting of MGM's board Tuesday that it would abandon its effort to restructure the casino operator. Tracinda confirmed in a statement filed with the Securities and Exchange Commission Wednesday that it had withdrawn from the purchase, adding "there is substantial unrecognized value in the assets" of MGM and it would continue to evaluate opportunities to boost shareholder value.

Tracinda's statement last month that it wanted to enter talks to purchase the upscale Bellagio casino-resort and CityCenter, a $7.4 billion casino complex being built on the Strip, sent shares skyrocketing 27% before they retreated.

Shares of MGM Mirage fell more than 7% following Wednesday's announcements. The shares are still well above $62.95, the closing price on May 21 before Tracinda's initial bombshell.

"We are very gratified by the overwhelming interest in our company that followed Tracinda's initial announcement," MGM Mirage Chief Executive Terry Lanni said in a statement.

Tracinda said Wednesday's joint venture announcement showed "there is significant potential to unlock value for the company's shareholders through a variety of strategic transactions."

MGM Mirage and Kerzner said their planned joint venture would call for MGM Mirage to supply about 40 acres of land, valued at $20 million per acre. Kerzner and one of its financial partners would provide cash equity so that it and MGM each own 50% of the project.

The land is on the corner of the Las Vegas Strip and Sahara Avenue. Another 38 contiguous acres further south, next to the Circus Circus casino-hotel, "is still in our long-range plan to develop," said MGM Mirage spokesman Gordon Absher.

"The joint venture could be seen as an anchor," Absher said. "Kerzner, with its international reputation for first-class resorts and attention to detail, is going to bring a lot to that corner and is the perfect opportunity to form a base from which to grow."

Kerzner, a Bahamas-based company that has developed the Atlantis resort there, will be responsible for project planning and design. Kerzner is also developing an Atlantis resort in Dubai to open in late 2008 and a resort in Morocco to open in 2009. It manages six luxury resort hotels under the One&Only brand in the Bahamas, Mexico, Mauritius, the Maldives and Dubai.

Planning is expected to be finished by the third quarter of 2008, with the as-yet unnamed project to open in late 2011, Absher said.

Analysts said the deal was among many 50-50 projects MGM Mirage has entered into recently, including the Pansy Ho joint venture in Macau to build the $1.1 billion MGM Grand Macau, and joint ventures to develop non-casino hotels with both Mubadala Development Company of Abu Dhabi and the Daiyutai State Guesthouse in Beijing.

"This transaction is true to form and we believe is just the beginning of such transactions," said Jefferies and Co. analyst Lawrence Klatzkin in a research note. "We believe, longer term, the company has tremendous upside potential."

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