he equity sale comes as MGM Resorts predicts a smaller third-quarter core loss than Wall Street expects, even as the market in Sin City, brutalized by the recent recession, continues to be dicey.
MGM said it will sell at least 40.9 million shares, while Tracinda, owned by billionaire investor Kirk Kerkorian, offered a minimum of 27.8 million with Barclays Capital acting as the sole underwriter on the deal. There are some 441 million shares outstanding. The potentially dilutive planned equity sale pushed the company's shares down 5.4% to us$ 12.87 in after-hours trading.
A spokesman for MGM Resorts declined further comment. Tracinda said in a statement that it viewed the company as a good long term investment and believed there is "substantial value in the assets." After the sale, Tracinda will have a roughly 30% stake in MGM Resorts, down from its current 37%.
Proceeds from MGM's sale will go toward debt repayment, a prime source of fresh capital that corporations have been raising over the past year from stock sales. MGM has been saddled for some time by a heavy debt load, in part from borrowing heavily to finance its Asia expansion and to upgrade its Las Vegas casinos.
Meanwhile, the company projected a third-quarter loss of 72 cents a share, including a us$ 347 million write-down on its us$ 8.5 billion City Center development. Analysts on average were looking for a loss of 24 cents per share, according to a poll by Thomson Reuters. Analyst estimates typically exclude items such as write-downs.
MGM Resorts added that revenue per available room from its Las Vegas Strip properties fell 2% as companywide casino revenue dropped 9%. The company also said Tuesday it received an offer of slightly less than us$ 250 million for its 50% stake in the Borgata Hotel Casino & Spa in Atlantic City, and has submitted the offer to its partner, Boyd Gaming Corp. MGM didn't disclose the bidder. A representative from Boyd Gaming wasn't immediately available to comment.
Because the offer is less than the carrying value of MGM's Borgata investment, MGM would post a us$ 129 million third-quarter write-down.
MGM struck a deal with New Jersey regulators in March to sell most of its Atlantic City assets in 18 months. The regulators required this because it believes MGM has a business partner in Macau with ties to organized crime. MGM has denied this.
Following the opening of the company's us$ 8.5 billion City Center resort on the Las Vegas Strip, which includes a casino, several hotels, condos and a shopping mall, Las Vegas has suffered an over abundance of rooms, which has hurt other properties there due to the weak economy. The company in August reported that overall company revenues had increased just 3% to us$ 1.54 billion in the second quarter of the year, despite the addition of City Center.