Hilton Rumored to Be Bidding for MGM Grand

MGM Grand Inc.’s stock rose sharply Friday amid speculation that the Las Vegas-based hotel-casino operator might be a takeover target of Hilton Hotels Corp., but some analysts termed such a deal unlikely.

Hilton had been making a multibillion-dollar bid to buy ITT Corp., owner of the Sheraton hotel chain, but ITT earlier this week embraced a higher, $9.8-billion buyout offer from Starwood Lodging Trust.

Now, a published report has suggested that Hilton might turn its sights to a possible purchase of MGM Grand, which is controlled by 80-year-old billionaire Kirk Kerkorian.

In response, MGM Grand’s stock climbed $3.31 a share to close at $44.81 on the New York Stock Exchange. The stock has soared nearly 30% during the last 10 weeks, in part because the fight for ITT prompted a rally in some other hotel-casino shares. Hilton’s stock fell 94 cents to close at $33.69 on the Big Board.

Both MGM Grand and Hilton declined comment on the rumor, which appeared in the latest edition of BusinessWeek magazine and was attributed to unidentified sources. But some analysts said they were dubious about its veracity.

“I don’t put a lot of credence in the story,” said David Wolfe, an analyst with Oppenheimer & Co. in New York. One reason: The spurt in MGM Grand’s stock price--combined with the company’s low-debt balance sheet--make the company more a potential buyer of assets rather than a seller, he said.

Of course, if Kerkorian “had a formal bid, I’m sure he would entertain it because it is his fiduciary responsibility,” Wolfe said. “But this rumor is premature.”

MGM Grand runs a mammoth 5,000-room hotel-casino of the same name in Las Vegas, and another in Darwin, Australia. The company also owns half of the New York-New York hotel-casino in Las Vegas, and it’s hoping to establish gaming properties in Detroit and Atlantic City, N.J.

Beverly Hills-based Hilton, led by Chief Executive Stephen Bollenbach, manages or franchises 240 hotels worldwide and owns 17 hotel-casinos and riverboat casinos, including properties in Las Vegas and Atlantic City.

Hilton has been expanding aggressively under Bollenbach; before its nine-month struggle to buy ITT, the company in December purchased gaming operator Bally Entertainment.

But in recent meetings with analysts, Hilton executives have indicated their desire to focus on expanding Hilton’s hotel properties, not its gaming interests, which is another reason why there’s “very little” chance that a deal with MGM Grand is in the works, said Daniel Davila, an analyst with investment firm Rodman & Renshaw/ABACO in New York.

Davila also asserted that MGM Grand--which is 62% owned by Kerkorian through his Tracinda Corp.--has one of the best managements in the hotel-casino industry, so “I don’t know that they [Hilton] can leverage MGM’s assets to a greater extent than MGM already does,” and thus make a costly takeover of MGM Grand pay off for Hilton’s stockholders.

At its current price, MGM Grand’s total stock market value is about $2.6 billion (making Kerkorian’s stake alone worth $1.6 billion). BusinessWeek quoted one source as suggesting that Hilton might offer $70 per share or more for the company, which would cost a total of $4 billion.

MGM Grand on Wednesday reported its best quarterly results in its history, saying its third-quarter profit (before one-time gains and charges) surged 39% from a year earlier, to $37 million on revenue of $208.4 million.