he price is 7 % less than Wednesday's closing price. Founder and top shareholder Kirk Kerkorian will sell 27.8 million shares, reducing his holding after considering strategic alternatives for the past year.
MGM dropped us$ 1.51, or 11 %, to us$ 12.10 in New York Stock Exchange composite trading, the biggest decline in almost a year. The company said it plans to use the proceeds primarily to repay some of its almost us$ 13 billion in debt.
MGM and Kerkorian’s Tracinda are tapping public markets as a record slump in Las Vegas eases and casino securities rally. Las Vegas Strip gambling revenue jumped 21 % in August, Nevada’s Gaming Control Board said last week. The company said yesterday that cash flow at its CityCenter joint venture on the Strip turned positive in the third quarter. “It eliminates some of the debt issues that could really hurt the company,” David Bain, an analyst at Sterne Agee & Leach, said of the share sales.
MGM said it found a buyer for its half-interest in the Borgata Hotel Casino & Spa in Atlantic City, bringing proceeds of about us$ 250 million, and that the company expects to receive about us$ 125 million in loan repayments this month from its Macau joint venture, the MGM Grand Macau.
The offer for the Borgata is below the property’s carrying value and will result in a us$ 128 million pretax charge in the third quarter, MGM said. Partner Boyd Gaming, which runs the resort, has the right to match any bid.
The stock being sold by MGM represents about a 9.3 % increase in shares outstanding, based on data compiled by Bloomberg. An additional 6.135 million shares from the company and 4.167 million from Tracinda will be offered for overallotments. Barclays Capital is managing the share sale.
The stock sales would dilute Kerkorian’s stake to about 30 %, Tracinda said separately. The 93-year-old billionaire is no longer seeking strategic alternatives for his MGM stake, according to the statement. He said a year ago MGM Resorts was undervalued and he was open to deal proposals. Tracinda now owns 37 %, according to Bloomberg data.
“Tracinda believes that there is substantial value in the assets of the company and that MGM Resorts is a good long-term investment,” it said in a statement. “Tracinda is not currently seeking other strategic alternatives with respective to its investment in MGM Resorts.”
MGM Resorts also reported a preliminary third-quarter net loss of 72 cents a share, compared with a loss of us$ 1.70 a year earlier. Revenue was about us$1.56 billion, the company said. Analysts expected us$ 1.55 billion, the average of 17 estimates.
Cash flow at wholly owned casinos, measured as adjusted earnings before interest, taxes, depreciation and amortization, declined 13 % to us$ 314 million in the quarter. Adjusted Ebitda at CityCenter, MGM’s Strip joint venture with Dubai World, was us$ 41 million in the third quarter, on revenue of us$ 413 million, helped by condominium sales and table game winnings at the development’s Aria casino. “This company has a lot more work to do,” Bain said. “These Vegas numbers are less than stellar.”
CEO Jim Murren resolved solvency concerns surrounding MGM Resorts in May 2009 after refinancing debt and selling more than us$ 1 billion in common stock and us$ 1.5 billion in senior secured notes as part of a recapitalization. He has subsequently tapped capital markets when investor demand for junk debt and casino stocks has rallied, including a us$ 1 billion convertible note sale in April.
MGM’s us$ 475 million of notes due March 2018 climbed 3.75 cents on the dollar to 104.25 cents to yield 10.5 % at 9:42 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The debt has climbed 11.625 cents since trading at 92.625 cents on September 23, Trace data show.
MGM put its stake in Borgata on the market and is leaving Atlantic City as part of a settlement with New Jersey regulators, who found the company’s partner in the MGM Grand Macau, Pansy Ho, to be “unsuitable.” An initial public offering of the venture is planned for this year, Murren has said.
A deal announced in the summer to sell the land beneath Borgata to Vornado Realty Trust and Geyser Holdings will close in the fourth quarter, and deliver net proceeds of about us$ 71 million, MGM Resorts said.