Dubai World Buys Big Stake in MGM Mirage
Thursday, August 23, 2007
LAS VEGAS, Aug. 22 -- A holding company for the Persian Gulf state of Dubai has laid down a big marker on the Las Vegas Strip -- a $5 billion investment that gives it a chunk of MGM Mirage and 50 percent of a massive entertainment complex the casino operator is building.
Dubai World will pay $2.7 billion for half of the 76-acre CityCenter complex under construction in the heart of the Strip, and buy up to $2.4 billion in MGM Mirage stock, the company said Wednesday.
The investment gives Dubai its first step into Las Vegas. For MGM Mirage, it removes a significant debt load from the development of the $7.4 billion CityCenter.
MGM Mirage also gets access to Dubai World's rolodex of wealthy clients who could purchase the new luxury condos at the site, and at premium prices, said MGM Mirage chief executive Terry Lanni.
"They are selling villas and condos to people we don't even know," Lanni said. "They're selling condominiums for four times per square foot more than we are."
The deal also caps a series of moves by MGM Mirage's majority shareholder, 90-year-old billionaire investor Kirk Kerkorian.
In June, Kerkorian abandoned a buyout of the upscale Bellagio casino-hotel when it was learned that his MGM Mirage cut a separate deal with Kerzner International Holdings to develop 40 acres of land on the Strip.
Along with acquiring 50 percent of CityCenter, Dubai World agreed to buy 14.2 million outstanding MGM Mirage shares at $84 a share, a 13 percent premium to Tuesday's closing price of $74.32. It would buy an additional 14.2 million newly issued shares at the same price, giving it an approximately 9.5 percent stake.
Kerkorian's stake in MGM Mirage is expected to fall to 52 from 54 percent.
Shares jumped $6.62, or 8.9 percent, to $80.94 Wednesday.
Lanni said the deal would reduce MGM Mirage's debt by about $6 billion, allowing the company to finance new projects.
Standard & Poor's Ratings Services said it may upgrade MGM Mirage's corporate credit rating of "BB" following the news. Dubai World made headlines last year when its subsidiary, Dubai Ports World, was forced to sell its U.S. port operations after an uproar in Congress over security concerns.
Dubai World this month signed an agreement for control of the Barneys New York department store. A division of Dubai World spent $100 million this year to buy the QE2, the majestic ocean liner that has carried millions of people across the Atlantic during its 40-year history.
The joint venture with MGM Mirage is expected to close by the end of the year.