Placing big bets on Kerkorian
Does Kirk Kerkorian have a hot hand?
Wall Street thinks so. Investors went “all in” on shares of MGM Mirage on Tuesday, the day after Kerkorian’s Tracinda Corp. disclosed that he wanted to buy two of the hotel and gaming company’s prime Las Vegas assets.
MGM Mirage’s stock zoomed more than 27% despite few specifics from the billionaire investor concerning his plans. Other gaming stocks rallied as investors bet that Kerkorian was on to something.
“Kirk’s move is a public testament that he believes MGM’s stock is undervalued, and it’s valued similarly to the other casino stocks,” analyst Robert LaFleur of Susquehanna Financial Group said. “So if he thinks MGM is undervalued, then everybody else must be undervalued too.”
One thing’s for certain: The flurry of excitement beefed up Kerkorian’s winnings. The jump in MGM Mirage’s stock from $62.95 to $79.98 added about $2.7 billion to the value of Tracinda’s stake in the company.
MGM Mirage said its board had formed an independent committee to study Tracinda’s proposal and consider strategic alternatives.
“There can be no assurances that this process will result in any specific transactions,” MGM Mirage said in a statement late Tuesday.
Exactly what Kerkorian is planning isn’t known. Beverly Hills-based Tracinda said in a regulatory filing Monday that it wanted to start talks with MGM Mirage to buy the Bellagio casino-resort and the CityCenter development, a $7-billion mega-resort scheduled to open in late 2009.
Tracinda said the deal would be part of a strategic restructuring of its 56% stake in MGM Mirage, which owns 23 casino-resorts worldwide, including half of the Vegas Strip. That “appears to suggest a wider range of possibilities,” J. Cogan, an analyst at Banc of America Securities, wrote in a research report.
Representatives of MGM Mirage and Tracinda couldn’t be reached for comment.
Kerkorian, 89, has been a member of the MGM Mirage board since 1987. He launched a tender offer in November for 15 million shares of the gaming company at $55 a share. Only 445,000 shares were tendered, increasing Tracinda’s stake to 158.8 million shares.
But the offer helped push MGM Mirage’s stock from the mid-$50s to around $75 a share. Much of the gains remained several weeks after the expiration of Kerkorian’s offer, which may be encouraging investors this time, said LaFleur of Susquehanna.
“This could conceivably amount to nothing,” he said. “But it could be a case of two steps forward, one step back.”
Another factor buoying the stock: Gaming companies have been a buyout target lately. Harrah’s Entertainment Inc. and Station Casinos Inc. are being taken private. Speculation of further buyouts, fanned by Tracinda’s filing, drove shares of Las Vegas Sands Corp. up $4.28, or 5.6%, to $80.19 on Tuesday, while Boyd Gaming Corp. gained $2.60, or 5.5%, to $49.64.
If takeovers don’t materialize, investors could get burned, LaFleur warned. With new hotels and casinos going up around the world, he said, competition for gamblers could get fierce.
He described the current gaming market as “good, not great,” but said that “at the end of the day, an asset is worth what someone will pay for it.”
martin.zimmerman@
latimes.com
