MGM Resorts International allowed back into Atlantic City

The New Jersey Casino Control Commission had doubts about Ms Ho’s suitability as a business partner for the operator of an Atlantic City casino. MGM Resorts International is the parent company of Macau casino operator MGM China Holdings. "I welcome MGM back to New Jersey," said Matthew Levinson, the commission's chairman. "I believe it will be a key player in New Jersey." 

The reinstatement would be welcome news to the beleaguered Atlantic City, which has seen three casinos close this year and a fourth, Trump Plaza, closing next week. On Tuesday, Trump Entertainment Resorts filed for bankruptcy, saying that its other casino, the Trump Taj Mahal, could also close in November if it can't cut expenses and reach a deal with its largest union.

In other news, after yesterday’s close, MGM released a statement saying it was re-qualified to resume a 50% ownership of Borgata Hotel Casino & Spa, a New Jersey-based casino it co-owns with Boyd Gaming. In 2010, MGM agreed to exit New Jersey after the New Jersey Casino Control Commission found it unsuitable to operate a casino there because of its business in Macau.

This re-qualification adds US$ 1 fair value to MGM’s shares, commented Nomura Securities analyst Harry Curtis and team: Although the accounting of the JV has not been finalized between MGM and BYD, the biggest hurdle in ascribing value to Borgata is now surpassed. We expect MGM’s 2015 EBITDA to include 50% of Borgata’s operating income, which is estimated to be US$ 91mn. Using an average share count of 563mn (assuming US$ 1.4b convertible bond is converted to MGM stocks in 2Q15), the -US$ 45mn incremental EBITDA in 2015 and US$ 86mn cash should add - US$ 1/sh to MGM’s TP (US$ 31). This accounting method is consistent with the City Center JV’s accounting method, which includes 50% of the JV’s operating income in MGM’s consolidated EBITDA.

MGM closed at US$ 24.18 on Wednesday. In other words, the resumption of New Jersey operation is not a big deal. MGM’s shares have fallen about 10% since late July, due to weaknesses in Macau. Its Hong Kong listed subsidiary MGM China have dropped over 15%. MGM rose 0.66% in after-hours trading.