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Casino/Racino

HONG KONG -- Amid hopes that the gambling slump in Macau may be bottoming out, U.S. casino operator MGM Resorts International plans to deepen its ties with Hong Kong businesswoman Pansy Ho.

 

Under a multilevel stock deal announced late Tuesday, MGM Resorts will raise its stake in Hong Kong-listed MGM China Holdings to 56%, while Ho is to acquire a 4.8% stake in MGM Resorts that would make her the New York-listed company's fifth-largest shareholder, according to data from Thomson Reuters Eikon.

 

The joint venture between MGM and Ho, daughter of gambling tycoon Stanley Ho, has been a source of controversy for the U.S. company. After gaming regulators in the U.S. state of New Jersey found Ho to be an "unsuitable" partner for MGM in 2009 because of disputed ties between her father and organized crime, MGM was forced to choose between selling its half interest in an Atlantic City casino or its half of what is now MGM China. Though it started preparations to sell the Atlantic City casino, MGM Resorts ultimately won clearance from New Jersey to keep both its investments in 2014. MGM and its real estate investment trust MGM Growth Properties own 12 other U.S. casino resorts, mostly in Las Vegas.

 

Under the new deal, MGM Resorts will acquire shares representing a 4.95% stake in MGM China from Ho in exchange for $150 million in cash and 7.06 million of its own shares, worth $174.4 million at the time of the announcement. Ho will also acquire 4 million shares from Tracinda, the investment company that is MGM's largest shareholder, for $25 a share. Her combined direct and indirect stake in MGM China would fall to 22.49%. The partners aim to close the deal by Sept. 30.

 

While analysts queried the terms of the deal, investors reacted mildly, with MGM Resorts shares sliding 1.4% to $24.49 in trading after the announcement. MGM China shares closed up 2.1% to 11.74 Hong Kong dollars in Hong Kong on Wednesday.

 

Analysts noted that a wave of new supply coming into the Macau gaming market, led by the $4 billion Wynn Palace resort complex set to open Aug. 22, is likely to push down share prices for Macau operators in the near term while MGM Resorts' stock trades at a markedly lower multiple to earnings than MGM China's. "MGM is issuing cheap stock for more expensive stock," analysts at investment bank Nomura commented in a research note.

 

MGM China, now among the smallest of Macau's six gaming operators, is itself in the process of finishing a new showcase resort. Officials indicated on Aug. 4 that the opening of the MGM Cotai, budgeted at 24 billion Hong Kong dollars ($3.1 billion), will be delayed from the first quarter of 2017 until the second. This came as they reported that revenues from MGM China's existing casino hotel fell 4% on the year in the April-June quarter to HK$3.5 billion, while a company measure of property operating profit showed growth of 4% to HK$1 billion on better takings from mid-level gamblers.

 

Nomura, which has a "buy" rating on MGM China, gave its overall approval to the MGM-Ho deal. "Despite the inevitable questions about why now and why at this valuation discrepancy, we believe that having a closer tie to Pansy Ho is a strategic benefit," its analysts wrote. They noted upcoming plans to apply for a government allotment of gaming tables for MGM Cotai and to renew MGM China's gaming concession. Market investors have been disappointed by the Macau government's initial allotment of just 100 new tables for the Wynn Palace, confirmed on Aug. 12.

 

"Ms. Ho has very strong industry relationships with the Beijing and Macau governments," the Nomura team wrote. "Having Pansy's interest more aligned with the parent strengthens MGM's position."

http://asia.nikkei.com/Business/Companies/MGM-raises-stakes-in-Macau-casino-partnership


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