Casino company boosts stock offer

A week ago, MGM Mirage and joint-venture partner Dubai World said they would purchase 10 million shares of the casino operator's stock at an inflated price in attempt to boost the company's value on Wall Street.

It didn't work.

On Wednesday, MGM Mirage said it would kick up the offer by 5 million shares and set a tender price at $80 per share. The price was 20 percent above the company's Tuesday closing price on the New York Stock Exchange of $66.47.

The decision to revise the tender offer was made Tuesday afternoon by MGM Mirage's board of directors. MGM Mirage will purchase 8.5 million shares while Dubai World, the investment arm of the Persian Gulf state, will purchase 6.5 million shares.

The announcement, made before the market opened Wednesday, seemingly helped boost the company after shares had fallen more than 4 percent on Tuesday. MGM Mirage rose almost 4 percent on the news at the market's opening. At the end of the day, shares of MGM Mirage closed at $70.57, up $4.10 or 6.17 percent. More than 8 million shares were traded, eight times the average daily volume.

MGM Mirage President Jim Murren said concerns about a downturn in the economy have hit the gaming industry, which has historically held its own during tough economic times. MGM Mirage's actions preceded a report Wednesday out of Washington, D.C., that the nation's inflation rate is at its worst level in 17 years.

Murren said the timing is right for the MGM Mirage to buy back some of its own stock.

"We probably have one of the strongest balance sheets of any company in our industry, plus we're in the strongest financial position of anyone," Murren said. "We also believe we're going to have a solid 2008, not a breakout year, but a solid year."

Murren added that many of the company's business elements are doing well. The board also approved a request by company executives to spend $1 billion in capital expenditures during the year on the company's existing properties.

Murren said the company would release a preview of its fourth-quarter earnings to show its resiliency versus the sagging economy. The prerelease of earnings would be done before the end of the month and as part of the stock tender offer documentation.

"We need to give investors as much information as possible," Murren said.

Dubai World owns more the 19.5 million shares of MGM Mirage, which is approximately 6.7 percent of the casino company. If it completes the buyback, Dubai World's stake would raise to 9.4 percent. Dubai World also owns half of the $7.8 billion CityCenter development.

MGM Mirage has 294 million shares outstanding.

The company's majority stockholder, Los Angeles billionaire Kirk Kerkorian, controls more 153.8 million shares of MGM Mirage through Tracinda Corp., his privately held investment arm. Tracinda has said it would not sell any shares as part of the transaction. If the buyback is completed in full, Kerkorian's stake in MGM Mirage would increase 1.5 percentage points to 53.9 percent.

Wall Street gaming analysts supported the stock buyback a week ago and were equally supportive of Wednesday's announcement, saying MGM Mirage's shares are undervalued.

"This morning's announcement is a distinct positive as it reflects the inherent value of MGM Mirage shares as seen by both management and Dubai World," Bear Stearns gaming analyst Joe Greff said in a note to investors. "We believe this speaks to management's view of solid MGM Mirage (results) specific (to) Las Vegas Strip trends, which we believe have come under recent scrutiny from investors."

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