Kerkorian company offers support to MGM board members

While real-estate investor Land & Buildings Investment Management works to sway MGM Resorts International shareholders to remove four members of the board of directors, the company’s largest investor said it would back company management in the brewing proxy fight.

Las Vegas.-based Tracinda Corp., Kirk Kerkorian’s privately held investment company, on Friday announced it would throw its support to the four board members targeted by Land and Buildings and its founder and chief investment officer, Jonathan Litt.

Litt, on Thursday, presented a conference call for investors to consider his proposal to remove board members Robert “Bobby” Baldwin, Roland Hernandez, Alexis Herman and Rose McKinney-James and replace them with himself and Matthew Hart, a former executive with Hilton and Marriott, Richard Kincaid, former CEO of Equity Office Properties, and Marc Weisman, chief operating officer of J.D. Carlisle LLC. All are advocates of converting MGM to a real estate investment trust.

But Tracinda isn’t going along with them.

“We are very confident that the current board and management team are committed to — and more than capable of — evaluating all avenues to deliver sustainable value, including determining whether some form of a REIT conversion would make sense,” the company said in a statement issued early Friday.

“As the largest shareholder of MGM Resorts with two board seats, including the role of chairman of the Compensation Committee, we can validate that the existing board and management team is held to the highest standards with regard to value creation for shareholders and compensation practices. Based on the board’s commitment, as well as the strong performance of the business since the financial crisis we intend to vote our shares for the current board’s nominees.”

Tracinda owns 18.6 percent of MGM’s outstanding shares and has two representatives on the board, Anthony Mandekic and Daniel Taylor.

In their Thursday presentation, Litt, Hart, Kincaid and Weisman said MGM has underperformed against peers in the market, is undervalued and has had a poor history of stewardship under the board and Chairman and CEO Jim Murren.

While Land & Buildings advocates converting MGM to a real estate investment trust to maximize value, supporters say that’s not the only reason they’re making a play to replace the four board members.

“MGM has been a perennial underperformer for years, most poignantly indicated in the mere 88 percent in total shareholder return since the appointment of Jim Murren as Chairman and CEO,” Litt said.

Over the same period, peers, including Las Vegas Sands and Wynn Resorts, showed returns of 533 percent, he said.

Litt said the company has an overleveraged balance sheet, subpar operations and a lack of capital allocation discipline. He said the board has been too complacent in addressing problems and it almost resulted in the company filing for bankruptcy protection in 2009 as the company’s CityCenter project was under construction.

In his presentations, Litt refers to the near shutdown of construction as “the CityCenter disaster.”

Land & Buildings also criticized board members for being too entrenched. Litt’s group is trying to oust members with the longest tenure on the board, except for Murren.

They also complained about Murren and board members’ overuse of corporate aircraft and overvaluing the role of diversification.

Citing case studies of Pinnacle Entertainment and Penn National conversions to real estate investment trusts, Land & Buildings believes shareholder value could more than double if MGM does the same.

MGM’s annual meeting is scheduled for May 28, but some analysts are saying that the Tracinda support of current management and the company’s own criticism of the Land & Buildings proposal coupled with its minimal ownership position — it has a 0.38 percent stake with its stock holdings — makes it unlikely Litt’s proposal will gain traction.

Contact reporter Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Find @RickVelotta on Twitter.