Run-up in MGM stock stalls Dubai plan

The recent run-up in the stock price of MGM Mirage all but doomed an attempt by the investment arm of the Persian Gulf state of Dubai to acquire almost 10 percent of the Las Vegas casino operator.

Infinity World investments, a wholly owned subsidiary of Dubai World, said Tuesday it was only able to acquire a tiny fraction of the 14.2 million shares of MGM Mirage the company had planned to purchase.

The tender offer ended Friday and Infinity World said it acquired 348,903 shares of MGM Mirage for $84 a share, about 0.1 percent of what it hoped to attract. When Dubai World announced plans to acquire the stock in late August, shares of MGM Mirage were trading at $74. On Friday, shares in the company closed at $92.98 on the New York Stock Exchange.

On Monday, MGM Mirage shares closed at $98.29, up $5.31 or 5.71 percent.

MGM Mirage shares have risen 31 percent in value since May, when the company’s majority stockholder, Los Angeles billionaire Kirk Kerkorian, dropped hints he wanted to buy the company’s $7.4 billion CityCenter project and Bellagio. The 90-year-old Kerkorian, who owns more than 54 percent of MGM Mirage, dropped those plans when the company announced a joint venture with Dubai.

In a statement Monday, Dubai World it would still complete a separate purchase of 14.2 million shares of MGM Mirage stock directly from the company for $84 a share. Once that purchase is complete, Dubai World will own more than 14.5 million shares of MGM Mirage common stock, which is approximately 4.9 percent of the company.

A Dubai World spokesman did not wish to comment on Monday’s announcement. However, he said the company’s tender offer that was filed with the Securities and Exchange Commission in August contained potential scenarios about what would happen if the company wasn’t able to purchase all the shares it wanted.

“We may acquire additional shares in the open market or in privately negotiated transactions on such terms and at such times as we deem advisable,” the company said in the filing.

Dubai World is still investing $2.7 billion in MGM Mirage to acquire half of CityCenter. In the August announcement, Dubai World said it wanted to spend another $2.4 billion to acquire 28 million shares of MGM Mirage stock. Instead, the direct stock purchase from MGM Mirage will bring the company almost $1.2 billion from Dubai World.

“The tender offer was just one of several elements of our relationship with Dubai World,” MGM Mirage spokesman Gordon Absher said. “Both parties are committed to completing our other transactions.”

Absher said MGM Mirage and Dubai World are in the preliminary stages of exploring joint international opportunities.

In September, Dubai World entered into a second joint venture with MGM Mirage, agreeing to have a hotel subsidiary partner with Kerzner International Holdings to develop 40 acres on the southwest corner of the Strip and Sahara Avenue.

Dubai World and Kerzner will contribute a combined $600 million cash for a 25 percent equity investment each. MGM Mirage will contribute 40 acres valued at $20 million per acre, for a 50 percent share of the project. The gaming company will also receive a $200 million cash distribution from the partnership.

The Bahamas-based Kerzner will lead the project’s planning and design.

In its SEC filing, Dubai World said it wants to increase its stake in the gaming company beyond what it previously announced.

“Any such increase in ownership would be subject to gaming authority approval and is not expected to result in ownership that exceeds 20 percent of the outstanding MGM Mirage common stock,” the company stated.

Dubai World will still face licensing from Nevada gaming regulators because of its 50 percent purchase of CityCenter, which will include a 4,000-room hotel-casino as the 76-acre project’s centerpiece.

Dubai World made headlines last year when its subsidiary, Dubai Ports World, was forced to sell its U.S. port operations after an uproar in Congress over security concerns.

Dubai World this month signed an agreement for control of the Barneys New York department store. A division of Dubai World spent $100 million this year to buy the QE2, the majestic ocean liner that has carried millions of people across the Atlantic during its 40-year history.

The company plans to turn the giant passenger ship into a first-class floating hotel, retail and entertainment destination, berthed off Dubai’s man-made Palm Jumeirah island.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or (702) 477-3871.

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