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LAS VEGAS-MGM Mirage and Dubai World said Wednesday they will make a joint Dutch tender offer for up to 10,000,000 shares of common stock of MGM Mirage. The offer price, which could range from $75 to $80 per share, is between 7.2% and 14.3% higher than Tuesday's closing stock price of $69.98. Share rose 5.44% on Wednesday to close at $73.79 on above-average volume.
The acquisition goal represents 3.4% of total shares and 8.3% of free float, which is the number of unrestricted shares not held by large owners like Kirk Kerkorian (Tracinda Corp.), who controls 52.4% (153.8 million) of MGM's outstanding shares. Kerkorian in December sold Dubai World five million shares of MGM stock via his charity, the Lincy Foundation, but has said he will not tender any shares as part of this upcoming offering.
Dubai World and MGM will split whatever shares are tenders. If the duo makes its 10-million-share goal, the purchases would reduce MGM's outstanding share count from 293.7 million to 288.8 million and lift Dubai World's ownership from 6.7% to 8.5%. Dubai would need to purchase another 4.3mm shares to reach 10% ownership.
"History tells us that when MGM tenders, its stock tends to outperform over the next 12 months," said JP Morgan gaming analyst Harry Curtis this morning in a note to clients. "Investors with a longer-term view, who agree with us that MGM's longer-term value could be in the $110 to $170 range, will likely see this as affirmation of MGM's longer-term value and choose not to tender stock. However, we believe those who are more concerned about short-term trends, the economy, consumer outlook and operating trends through 2008 may want to take the opportunity to tender stock."
Under its original agreement with MGM Mirage, Dubai World was to acquire a 50% stake in MGM Mirage's multibillion-dollar CityCenter development on the Las Vegas Strip and at least 28.4 million common shares (9.5%) of the company, half directly from MGM Mirage and half from shareholders via a tender offer. While its investment in CityCenter and its direct share purchase went off without a hitch the tender offer failed, attracting only 350,000 shares because MGM's share price jumped several dollars above the $84-per-share tender offer, leaving Dubai World well short of its minimum goal and out of sight of its maximum goal of a 20% stake.
With the acquisition from the Lincy Foundation last month, Dubai World and its subsidiaries now control 19.7 million shares of MGM Mirage. The Lincy acquisition was completed with funds provided by share forward transactions and share swap transactions, as set forth in confirmation agreements with Credit Suisse International, Deutsche Bank AG, London Branch, and the Royal Bank of Scotland plc. The agreement provided a Dubai World subsidiary with committed financing for a one year term of up to $1.2 billion to finance the acquisition of MGM common shares in open market or block purchases. The interest rate of the share forward and share swap transactions is based on three-month Libor plus 2.25%.
Dubai World is a major investment holding company with a portfolio of businesses that includes DP World, Jafza, Nakheel, Dubai Drydocks, Maritime City, Istithmar, Kerzner, One & Only, Atlantis, Barney's, Island Global Yachting and Tamweel. Its real estate projects include Nakheel's Palm and World developments as well as real estate investments in the US, the UK and South Africa. The conglomerate has developed 80,000 luxury residential villas and apartments and approximately three million sf of retail space.
MGM Mirage, the largest landowner on the Las Vegas Strip, owns and operates 17 properties located in Nevada, Mississippi and Michigan. Its $7.4-billion CityCenter development, scheduled to open in November 2009, includes a 4,000-room resort casino, 2,650 condominiums in multiple towers, two 400-room non-gaming hotels and 470,000 sf of retail and entertainment space. In addition, the company has major new developments under construction in Nevada, Michigan and Macau S.A.R., and is planning another massive integrated resort at Sahara Avenue and the Las Vegas Strip with Kerzner.
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