MGM Mirage may say ‘take two’

MGM Mirage investors may soon be able to double down.

Chairman and Chief Executive Officer Terry Lanni said last week the company might consider splitting its nongaming hotel subsidiary into a separate publicly traded operation.

The idea may sound familiar. In 1998, Hilton Hotels Corp. spun off its casinos, including the Las Vegas Hilton and Bally's, into publicly traded Park Place Entertainment to get the gaming side more value from Wall Street. Park Place acquired Caesars Palace, became Caesars Entertainment and was bought by Harrah's in 2005 for $9 billion.

"What MGM Mirage is looking at is almost a reverse of the Hilton move," said Deutsche Bank gaming analyst Bill Lerner, who posed the question of a split to Lanni during the company's quarterly conference call.

The remarks appeared to be a throwaway line, but Dow Jones, Reuters and Bloomberg picked them up. Chief Financial Officer Dan D'Arrigo gave the issue additional legs in interviews. Following MGM Mirage's largest single-day stock price jump in nine months, analysts buzzed.

"It is worth noting that this is not a management to throw out things on conference calls," wrote Barbara Cappaert of KDP Investment Advisors. "We suspect a long-term strategy that could alter (where changes in funding) may eventually emerge."

Lerner asked the question because he picked up rumblings MGM Mirage was considering the split. Multiples -- value times cash flow -- Wall Street has attached to pure hotel groups have been more favorable than multiples given to casino operators. This has irked Lanni; he doesn't believe the company's nongaming hotels are getting a favorable look.

Lerner said the Four Seasons hotel chain had a valuation of 28 times cash flow before it was taken private. By not dismissing the idea, Lanni confirmed Lerner's belief that MGM Mirage was considering the concept.

The company formed MGM Mirage Hospitality last year to develop luxury hotel properties worldwide. Joint ventures have been struck with Mubadala Development Co. of Abu Dhabi and Diaoyutai State Guesthouse of Beijing. Last week, United Arab Emirates-based Gulfnews.com reported MGM Mirage was exploring a mixed-use resort in Dubai with joint-venture partner Dubai World.

"MGM Mirage has a pipeline of nongaming JV (joint-venture) projects the company believes should be given much higher valuations," Lerner said. "The company wants to be viewed as both a casino and a hotel operation."

MGM Mirage also has gaming joint ventures, including the MGM Grand Macau and a planned Strip project with Kerzner Holdings International.

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871.