Two Way Hard Three | Las Vegas Casino & Design Blog

I don't know if the mathematics of going private would make sense, primarily due to the recency of the Dubai/Infinity World investment (and 85% value shredding) . A Tracinda stake increase makes much more sense, logistically and financially, but I don't think KK will buy the whole farm, nor will D/IW sell it to them. If I recall correctly the Dubai folks said that they had planned on holding their % of CC + MGM for 'at least 5 years.'

MGM has had a fund to buyback stock since around the time of the Dubai/Infinity World deal. To go private, wouldn't they have to essentially buy out Infinity World's stake, or offer a percentage of the new MGM private holding along side KK's Tracinda?

D/IW bought a zillion shares at $80 8 months ago... what would Tracinda and/or the MGM private holding offer? $18? 2x 5x 10x pay that day's closing price? That would be a lot of bait to cut on both ends of the line : D/IW's losses + more MGM debt.

Certainly they'd have to do something with Dubai World but I'd think that they could potentially work something out if there was mutual will/benefit...

Issuing them shares in a private entity would seem to be an option.

MGM closed today at $10.85, down 88% from its 52 week high of $95.61. Kerkorian owns close to 150 million shares. I don't know what his net worth is today, but earlier this month when both MGM and Ford were higher, it was reported his net worth was down 42% since May. He's a lot poorer today, and I don't think MGM can look to him to get them out of this mess. Kerkorian still has 130 million shares of Ford he hasn't sold yet. Ford closed at $2.00 today. His costs were somewhere between $4 and $8.50.

In these tough times, can MGM's debt and CityCenter do in the company? Dubai can't be happy with its investment in CityCenter, and Dubai is already facing economic problems at home. Will they bail?

Can CityCenter succeed when it opens? I know MGM is a far cry from Trump, but to date, only 25% of the condos at Trump have closed. How many prospective buyers at CityCenter will walk? I don't see the economy and personal wealth being restored by the time CityCenter opens. Someone posted here recently that they asked the CityCenter sales rep at Bellagio why a high roller would buy a condo when they can get comped full RFB at the finest casino resorts in the world. If I recall, the poster reported the sales rep really didn't have an answer.

This could be the perfect storm for MGM with its debt and concentration on the Las Vegas Strip. Will MGM have to sell some of its properties? Wouldn't it be ironic if Steve Wynn bought back the Mirage Resorts properties from MGM.

Privately held Harrah's, MGM and LVS are in precarious positions. WYNN, although affected by the economy, appears to be in the strongest position.
Added Comment: After posting, I saw this article in the Financial Times:
http://www.ft.com/cms/s/0/26d8461c-a06a-11dd-80a0-000077b07658.html

No doubt he's way down in personal holdings... still, I'd imagine an asset sale to him before anything to someone else but you never know in these crazy times.

As Chuck said, MGM Mirage's board did approve stock buy backs but who knows if they need that cash for something, despite the currently low price.

It's a turbulent time and some of these operators may not survive as we know them today.

The "Norm" column in the RJ talks about rumors regarding Bellagio. Apparently, Peter Carlino of Penn expressed interest in it. Steve Wynn said he is not interested; he is focused on his golf course redevelopment.
http://www.lvrj.com/news/33208269.html

Well, there you have it. The man has spoken. That does not really surprise me. Wynn does not care for the changes they've made to his hotels I'm sure. And he's said before, he likes to build hotels, and not buy them. He can keep his overhead low and ride this out, and spend more time on planning and development of his master golf course land. I'm not sure I even look for him to break ground in Cotai any time really soon. Time will tell, and we shall see. It would be interesting to see someone besides MGM-Mirage own Bellagio.

I have never bought stock before, but I did it yesterday. I don't have much to spend, but I bought equal amounts of MGM and Boyd. With the exception of Wynn, almost all our companies are down 80% or more from the 52 week high. I am convinced this price drop is an overreaction, just like the oil run up last summer was. Anyone got any ideas on which gaming related stocks have the best long term potentinal? I'm looking at 5 years or more. Thanks

"It would be interesting to see someone besides MGM-Mirage own Bellagio."

Brian, I agree with you. If times were different, MGM could succeed with both Bellagio and ARIA. Now, I'm not so sure. It seems to me ARIA will cannibalize Bellagio, and ARIA needs to be MGM's flagship property. Bellagio may be sold in spite of the denials.

http://www.streetinsider.com/Insiders+Blog/Cramer+Thinks+Major+Casinos+Like+MGM+And+Las+Vegas+Sands+(LVS)+Are+Done/4092931.html

Not say I agree with him, but this is an interesting story. Love him or hate him, Cramer is no idiot. Though he may not always be right, and he very well might not be this time either.

Jeff - I once considered myself an expert on casino stocks and companies. But I would hate to even try to give you an answer at this point. Wynn makes it, I'm sure. And its by far my largest holding. Its been bloody, and may even get worst, but I think MGM-Mirage makes it, though maybe not in its full current form. Maybe they do have to sell some things? I don't know. If you look at my post over the past few years on this board, I have said time and time again, that LVS was the single most over valued casino company. I knew it was due for a correction, but this is no correction, this is armageddon. I think there is a good change LVS might not survive this. Their plans for Cotai might have bit a tad bit too ambitious.

Wynn has stated in conference calls before, that other companies might be able to grow in leaps and bounds, but he cannot. And he said, that in time we'll see if they can also. We know he was refering to LVS, and it looks like Wynn was right once again. They might have got a little to big for their own pants, so to speak.

So in 5 years, WYNN is the safest play, but I don't know that Wynn stock will trade in 5 years, at these prices, they may go private.

MGM has the most upside potential, but much more risky. They might be sitting on several thousand condos, for a very long time.

A bit in the Sun on MGM:

http://www.lasvegassun.com/blogs/gaming/2008/oct/22/mgm-mirage-stock-still-downslide/

I am not so sure that Bellagio is going to be canniblized by City Center as much as there is going to be a downward shift of price points. The consumer should certainly stand to gain by having their dollars go further with stepped up resorts. Bellagio may become the new Mirage, and Mirage may become the new TI, so on and so forth. The only loser is Circus Circus, and quite honestly, that is no big thing.

Additionally, I am not convinced that the

inventory of City Center condos is going to be hight like Trump's. I know for a fact that the Vdara, specifically, has undergone two price increases since it went on sale Spring of 2007.

I would even hazard a guess that the MGM brand stands to gain in this downturn as many other potentially competing properties remain incomplete or delayed indefinitely.

I bet KK is kicking himself for holding onto Ford for as long as he has. Truly a shame because MGMMirage stock is so ripe for big investment.

@Ken - I don't see any downside for Circus Circus in the near to mid term, in fact the opposite, for obvious reasons : those traveling with kids - need a really good value, which C2 delivers. Yes... it's a bit dumpy but there are new rooms coming online, the dining lineup has been redone and recent reports have them making better of the strip frontage (Dear Lion Inc, keep the sign).

With SBESahara planning to pole vault into the mid-tier, Stardust/New Frontier long gone, Stratosphere being what it is, the pickins are getting a little slimmer for the budget traveler wanting to do the strip (then again, Harrah's strip bloc seems to be heading south in a hurry). If anything, it's the upper middle-tier properties (Mirage, Venetian, Paris, Mandalay, MGM) that are going to see a greater scrunching of REVPAR/ADR via reduced demand & discount enticements - OR - in the case of C2 (via Janis Joplin) "If you ain't got nuthin, you got nuthin to lose." Added bonus: Circus Circus is paid for.

Jeff, my girlfriend already owns WYNN and is considering buying more. I think she's right. That company has a good sense of what it can and can't do. MGM probably comes out on the far side of this pretty much intact. Ken's observations seem very much on point. (But I don't even see Bellagio having to move down the food chain to the mid-price tier. It's held its price points and market share extraordinarily well considering its age) As for LVS, I have to agree with Brian that we're seeing a slow-motion meltdown; they're far more overextended than MGM (strictly IMO).

ASCA looks like it might be an opportune buy, as it's perceived to be a takeover target and has much less downside than other companies that might be up for grabs (ISLE, BYD, penny-stock TER). I'll like PNK better if the Missouri ballot initiative goes through but I have overextension concerns there, too.

The only manufacturer I would actively urge someone away from is IGT. The pushback against IGT's participation games seems to be increasing and God only knows how long it will be before the commitment to downloadable slots pays off. (And what happens if Aria opens and Nevada *still* hasn't approved server-based gaming?)

Posted by mike_ch

I wouldn't put too much stock in Jim Cramer, so to speak. I've heard him say Bear Sterns is healthy and CapitalOne is going to be bought by Canadians, all in the past year.

He isn't stupid but he sure as hell isn't Warren Buffett if I was going to bandwagon on somebody else's investment trail.

Posted by mike_ch

I'm not sure why Wynn would go private. He has expensive tastes, and the money he makes from investors helps even if confidence is low.

I've said once before and I still believe it: The big differences regarding WLV and Bellagio come down to shareholders: with Bellagio, Steve was building largely with other people's money, and so he built something magnificent but he got bitten for it. Wynn Las Vegas isn't quite as Vatican extravagant that Bellagio is, but look who it's main shareholder is. There's not as many diamond doorknobs, so to speak, when the majority of the money on the table is his personal stake.

Going private is a good move in an ultra competitive market but the market is unraveling. Why bother and take on debt?

I wonder how it would be like if LVS was in control of bellagio? there would probably be fake plants and flowers in the conservatory instead of real ones.

I bought MGM a few months ago thinking I had a good deal at $23, hoping the prices increase again but a little worried about the liquidity of these companies.

I dont see why Bellagio has to suffer with Aria opening or having to reduce its prices, its still expensive even with Wynn and Palazzo open. Aria and Bellagio are very different properties and the style of Bellagio I think will still appeal to alot of people over Aria. Aria rooms look very average and I would rather a room overlooking Lake Bellagio than that shopping center. Even though Aria is new, I would bet that it won't be finished off as well as Bellagio. Plus Aria's pool looks really really small.

I still dont understand the point of the condo's because as Detroit pointed out if you can afford one, why not get comped at Wynn or Bellagio?

Andrew

Posted by mike_ch

Aria has to be positioned as "the new big thing" or else it's failed completely to achieve what it's supposed to accomplish. You can't fill another 4,000 room hotel next to another 4,000 room hotel with some of the highest rates in town. There's also Bellagio being 10 years old now, and the new thing is generally supposed to cost more than the old thing. If it doesn't, it can look bad, like they're practically giving Aria rooms away.

Aria was conceived at a time when analysts thought people would pay even more than what they're already being charged for Bellagio and Wynn. That market has all but disappeared, so the backup plan is to re-sort the totem pole.

I can't see much room to complain as a customer. In the realm of standard rooms I'd imagine that Aria and Encore are going to draw a similar price point, and Bellagio is probably going to look like a good deal for what you get. There's some people who (gasp) still like it more than WLV.

That said, Bellagio spent 2004-2006 tightening up it's games and cutting it's service hours and seemingly acting as an ATM to fund CityCenter, and I can imagine that service will see cuts if it's relied upon to generate enough profit to cover for Aria falling short of expectations. The level of professionalism is the most important thing that's returned to form there in recent years.

If service is cut, and I can't see where service could be cut more than shuttering a few restaurants and cutting back on the botanical excesses like the conservatory, Bellagio will essentially become a dormitory for CityCenter the way Luxor got ignored after Mandalay opened. A nice place to stay, but not a place you hang around after you get downstairs.

Posted by DavidF

Well MGM reports 3Q this Wednesday, so lets see what happens to the stock, I must admit at this numbers we have to be seeing some sort of Market Capitulation, I am tempted to invest myself, it can't get much worse....

Having said that what I consider to be a good yardstick of how well Citycenter is going to do is the price of the Real Estate at the MGM Signature. Right now you can get a Studio Condo for as low as $250K and a 1 bed for $350K, not exactly encouraging news.....

What the hay!!! Sometimes Mike I just dont understand your posts! :) Even though aria is suppose to all big etc. it wont become a "dormitory" of the CC. Sure sevice and lack of renovations happened at the b back in 04-06 but NOW it has'nt become just an ATM for CC.

I think what he's saying is that if they let Bellagio slip, it could potentially just become the cheaper, semi-nice place near ARIA... Not a foregone conclusion but I see the trajectory he's fleshing out in his post.

"Right now you can get a Studio Condo for as low as $250K and a 1 bed for $350K"

If I remember correctly, when MGM first opened the sales office on Studio Walk, the Studios were $550K and the 1-bedroom $750K+. I wonder how the class action suits are progressing in which unhappy buyers claimed sales came under Secutities laws because the sales people "guaranteed" the rental income. It's a clever idea, but buyers probably don't stand a chance to prevail.

Streamline Towers' owners get on the bandwagon:
http://www.lvbusinesspress.com/articles/2008/10/27/news/iq_24661752.txt

Posted by mike_ch

Yeah, I'm just playing crystal ball. That might happen, or it might not.

All I can say is as a customer it felt that after Mandalay opened the guys there couldn't even be bothered to think about the Luxor, and while Wynn didn't ignore the Mirage after Bellagio the truth is that nobody ever looked it the same way again.

I was simply charting a course for it to slide from a (metaphorical) five-star to four-star if necessary. I picked the conservatory as my sacrifice to budget cuts simply because it could be simply done: it isn't in the casino, there's nothing too important you have to get through it to get to. And yeah, there's a lot of money and hands-on TLC that goes into making that place, and you've no doubt seen it if you've been there during a switch. It seems crazy to think of the hotel without that feature, but consider all the changes we've seen the past few years around the strip with tigers going away and whole casinos renovating while remaining open, it's not too hard to picture the lobby with the conservatory walled off.

This doesn't mean anything is going to happen, though. When land value got really expensive, I seem to remember some hushed grumblings about how much potential money was being "wasted" on the fountain show when you could build a lot of cash registers and toll booths in the space used by the lake. Today the water show packs people into the doors and isn't expensive to keep running. It pays for itself as a billboard and as something people want to look at from their rooms.

Mike, if Bellagio either cheapened or removed the Conservatory, I would boycott all MGM properties. Of course, they could convert it to a Ford dealership; Kirk still has 100 million shares of F. :-)
I'm sure MGM has done marketing studies on how many visitors to the Conservatory drop some dollars in the casino while visiting the property. It's got to be significant.
Finally, I drove on I-95 this morning and saw many new billboards for Fontainebleau Miami Beach. They're well done and make it sound sultry and high-end; reminded me of a Las Vegas property promotion.

Posted by DavidF

Well MGM reported, I will leave analysis of the numbers to the Podcast, although I do note that Bellagio’s numbers went up, so MGM may not want to be so hasty in making it CC’s Red headed stepchild.

No Big Surprise that CC North and Atlantic City are on hold, but its an interesting the plan to effectively Mortgage NYNY to raise the cash to finish City Center. Thoughts?

"I picked the conservatory as my sacrifice to budget cuts simply because it could be simply done: it isn't in the casino, there's nothing too important you have to get through it to get to."

Michael Mina? The Cafe? You don't seriously think Bellagio would wall off access to those do you? As Leonard Stern used to say here, gimme a break! Not gonna happen.

Anyway if, as reported, Bellagio's numbers are actually up this quarter it would be monumental folly to make visible cost cuts there.

Posted by mike_ch

MikeP, the Cafe could be moved to any number of other places (especially if they shutter a restaurant or two since a lot of the chefs are opening Aria restaurants as well.)

Without upsetting too much, you could run Circo or FIX with a cafe menu right now during breakfast and lunch and late night, if you really needed to. You might even see increased profits since the cafe would be right off the casino floor.

Mina has so many restaurants in town that he's nearly Wolfgang Puck. He too is opening up in Aria.

I don't know too much about Bellagio's high end stuff except that Circo, Le Cirque, Prime, and Picasso have all been mostly untouched over 10 years and are of varying popularity. Picasso seems the most "safe" even if the company could make a few bucks selling the paintings.