Kerkorian’s strategy in gaming is to exploit the MGM brand

Gary Thompson

Wednesday, May 6, 1998 | 9:06 a.m.

MGM Grand Inc. is pursuing a seven-pronged strategy designed to enhance shareholder value, executives said at the annual meeting Tuesday.

MGM Grand President Alex Yemenidjian said the strategy calls for:

Yemenidjian said MGM prefers to spend four to five times annual cash flow to build new resorts rather than eight to 10 times cash flow to buy older properties, unless such properties would be "meaningfully accretive" to earnings and dominate their markets.

"We want to maintain a strong balance sheet with flagship properties, a lot of equity and very little debt," he said.

MGM Grand Chief Financial Officer Jim Murren said the company had "the strongest balance sheet in the gaming industry" at the end of 1997 and posted a higher operating cash flow margin than its biggest competitors: Mirage Resorts Inc., Circus Circus Enterprises Inc., Hilton Hotels Corp. and Harrah's Entertainment Inc.

MGM had $500 million in cash, about $550 million in debt and $1.1 billion in shareholder equity at year-end, the best debt-to-equity ratio among big-cap gaming companies and investment-grade debt ratings from Moody's and Standard & Poor's, Murren said.

But the company's most important asset, Yemenidjian said, was the intellectual capital of its employees.

"Talent has become the most important, most scarce resource in our industry because we're in an extremely competitive environment with no margin for error," he said.

Noting the glut of hotel rooms and the lack of adequate air service and highway access afflicting Las Vegas, he said MGM needs "to accelerate our adaptability."

He also said Asian economic turmoil has impacted high-end Las Vegas resorts.

"But the high-roller business is a little like sex," he said. "Everybody thinks there's a lot more of it than there is, and that somebody else is getting most of it."

MGM Grand Chairman Terry Lanni reviewed the $700 million expansion of the company's flagship resort, which includes a 380,000-square-foot conference center "like nothing else in the world."

By December, he said, the $135 million Grand Mansion at the MGM will be completed. The 29-suite project, modeled after a Tuscan village, "will be the finest hospitality product in the world," he said.

Lanni said MGM may open a temporary casino in Detroit by early 1999 if its licencing is completed as a prelude to construction of a $700 million hotel-casino there.

He said MGM Grand and its South African partners have won three licenses of 15 to be awarded in that country and expect to wind up with seven to eight of the total. Two temporary casinos are already open there, he said, adding that the agreements require no capital investment by MGM.

Lanni also said the company has acquired 34 of the 35 acres it needs to proceed with construction of a $700 million hotel-casino in Atlantic City and hopes to get the remaining acre through legal proceedings.

Shareholders re-elected the company's board, including Kirk Kerkorian, who owns about 62.5 percent of the outstanding stock. One director, MGM-UA Chairman Frank Mancuso, resigned to devote more time to running the studios, which are also controlled by Kerkorian.