Kirk Kerkorian's Tracinda To Explore Options For MGM Mirage

The Bellagio Hotel in Las Vegas, Nevada.
The Bellagio Hotel in Las Vegas, Nevada.

MGM Mirage said Tuesday it will begin to review plans from its majority investor Tracinda to buy the group's Bellagio Hotel and City Center properties.

"The company is mindful of its obligations, including to its shareholders, lenders, employees and the communities in which the company operates,' said MGM Mirage, which will start the review at its schedule annual shareholders' meeting today.

On Monday, Billionaire investor Kirk Kerkorian's Tracinda said it planned to explore strategic options for its investment in MGM Mirage and would enter into talks to purchase the No. 2 U.S. casino operator's Bellagio Hotel and Casino, and CityCenter properties in Las Vegas.

Tracinda said the alternatives for its MGM Mirage
investment may include financial restructurings of all or a substantial part of the remainder of the casino and hotel operator.

News of Kerkorian's gambit sent shares of MGM Mirage surging 23% to $77.50 in electronic trading before the opening bell. Rival casino stocks also jumped with Wynn Resorts and the Las Vegas Sands both up about 4%.

In January, Tracinda tried to increase its stake in MGM Mirage to more than 61%, but failed to buy all the shares it wanted. It owned 55.9% of MGM Mirage as of January 11.

Tracinda said it has made no decision on any restructuring transactions for MGM Mirage, and reserved the right not to pursue any deals.

MGM Mirage could not be immediately reached for comment.

CNBC's David Faber said "it'd be difficult for Tracinda to do an arm's-length transaction, under which it could buy the properties."

Faber said that Tracinda "may be considering a partner to buy the remaining 44%" of MGM Mirage -- then "that partner could sell Tracinda the Bellagio and CityCenter." Another possibility: the Tracinda announcement may mean the hotel and casino company is in play overall, Faber said.

A sale or restructuring of MGM Mirage, which has a market capitalization of $17.8 billion, would follow a wave of mergers and private equity deals in the sector. Harrah's Entertainment, the world's largest casino operator, was recently acquired for $17.1 billion by two private equity firms.

Deutsche Bank said in a note Tracinda could sell some or all of its stake to purchase the properties, and MGM could unlock the underlying value of its portfolio and use the proceeds to pay down debt.

Bellagio, MGM's biggest cash cow, and its massive CityCenter property now under construction both target the U.S. gambling capital's growing number of well-heeled visitors with exclusive shops, high-end restaurants and entertainment.

Competition for high rollers has been growing in Las Vegas, with new resorts from Wynn Resorts and Las Vegas Sands.

Tracinda said it has made no decision on any restructuring transactions for MGM Mirage, and reserved the right not to pursue any deals.

Board Review

MGM Mirage's board said it would review Tracinda's statement after the company's annual meeting on Tuesday. MGM Mirage owns 19 properties in Nevada, Mississippi and Michigan. It has investments in three other U.S. properties, land holdings in Atlantic City, and stakes in projects under construction in the United States and Macau.

CityCenter is MGM's latest Vegas development, located between the Bellagio and Monte Carlo resorts at the busier end of the Strip. Slated to open in November 2009, it will include 2,700 private residences, a Mandarin Oriental luxury boutique hotel, a 4,000-room resort casino and a 470,000-square-foot retail and entertainment area.

Despite cost overruns, analysts said confidence about CityCenter's prospects increased when MGM Mirage raised its estimate of gross proceeds from the sale of residential units to $2.7 billion from $2.5 billion.

Big Bets On Casino Mergers

"I still feel very comfortable with my $85.50 (stock price) target as a minimum value for the company," said Jefferies & Co. analyst Larry Klatzkin, who said he has the highest price target of his peers on MGM and believes it is undervalued.

The sector as a whole has been busy. Station Casinos announced
plans in December for a $4.7 billion management-led buyout. And Trump Entertainment Resorts hired Merrill Lynch as a financial adviser to weigh strategic options, such as refinancing or selling some or all of its Atlantic City casinos, according to media reports.

Keith Brenan, senior vice president at real estate advisory firm the Weitzman Group, said investors have been unlocking value in the Strip over the last decade. "I think you'll see that evolution continue," Brenan said.

Kerkorian's Tracinda recently was among the bidders vying for DaimlerChrysler's money-losing Chrysler Group. Cerberus Capital Management won the hand of Chrysler last week, but a source familiar with the situation said Kerkorian has not dropped his bid for Chrysler.