Penn National says it’s not buying The Mirage — right now

For now.

Penn National’s management is committed to acquiring a Strip resort, potentially in 2009, giving the casino and racetrack operator, with 19 facilities in 15 jurisdictions, a foothold in the Las Vegas market.

Reports of a potential deal between MGM Mirage and Wyomissing, Pa.-based Penn National surfaced soon after MGM Mirage signed an agreement Dec. 15 to sell Treasure Island for $775 million to former New Frontier owner Phil Ruffin.

Many gaming observers considered a deal for The Mirage a logical deduction. MGM Mirage has liquidity and leverage issues. With the opening of the $9.1 billion CityCenter planned for later this year, the casino operator is taking steps to reduce debt and improve its balance sheet.

MGM Mirage Chairman and CEO Jim Murren said recently that more asset sales were a possibility.

Penn National has $1.48 billion in cash sitting in the bank, the result of a break-up fee from an aborted private equity buyout attempt. Company Chairman Peter Carlino said in October that Penn National was eyeing potential Las Vegas assets.

One Wall Street analyst said Tuesday that Carlino was told by the company’s board of directors to wait until better opportunities emerged before buying any Strip resort.

"They think there are going to be some deals available later in the year," said the analyst who asked not to be named. "The company might be able to get a better price."

A high-ranking Penn National official said no deal was imminent soon after a Review-Journal blog item was posted Tuesday.

Also on Tuesday, Murren, while addressing two meetings with 1,500 MGM Mirage managers, dismissed published reports that a sale of The Mirage would be announced this week.

"Are we announcing the sale of The Mirage? No," Murren said.

MGM Mirage officials said last month that proceeds from the Treasure Island sale would be used toward reducing a portion of the company’s debt.

Last week, MGM Mirage pulled the plug on the Harmon component of CityCenter, delaying the nongaming hotel for at least a year and killing off the condominium portion of the tower. The move will save about $200 million in construction costs.

Gaming analysts said that selling The Mirage — acquired by the company in 2000 as part of its $6.4 billion buyout of Mirage Resorts — would make sense only if the price was well above seven times the property’s cash flow. One source said the price would have to be more than $1 billion.

MGM Mirage completed an extensive $100 million renovation of The Mirage last year, remodeling its 2,765 hotel rooms, changing out restaurants and updating the casino floor. The Strip-front volcano feature was given a $25 million makeover that was unveiled in December. This year, The Mirage celebrates its 20-year anniversary.

In attempting to dispel Mirage sales reports, MGM Mirage officials said that as a publicly traded company, executives are required to evaluate any legitimate offer that might be proposed. Otherwise, the company could face issues with its shareholders.

Several Wall Street observers didn’t believe a sale of The Mirage would accomplish the company’s stated goals of improving liquidity and reducing debt because a transaction would remove cash flow from the company. Company executives have said they expect The Mirage cash flows will increase as the economy recovers.

Several analysts thought MGM Mirage would rather part with other assets, such as vacant land on the Strip or properties outside of Las Vegas, such as the MGM Grand Detroit or the Beau Rivage in Biloxi, Miss. MGM Mirage controls empty land parcels on both ends of the Strip, south of Mandalay Bay and north of Circus Circus.

Several Wall Street analysts, in recent reports to investors, have tagged Penn National as the only casino operator that could make a move on the Strip.

Most of the major casino operators — Harrah’s Entertainment, Station Casinos, Boyd Gaming Corp., Ameristar Casinos, and Pinnacle Entertainment — are dealing with financing and liquidity issues.

Wynn Resorts opened the $2.3 billion Encore last month and is building a second casino in Macau. Company Chairman Steve Wynn, both privately and publicly, hasn’t expressed a interest in buying back The Mirage.

Published reports have linked Penn National with the Harrah’s-owned Rio.

Joe Jaffoni, Penn National’s outside spokesman, said Tuesday that the company doesn’t comment on rumors and speculation.

 

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.