Sell-off of Mirage Resorts assets is a possibility

David Strow

Tuesday, Feb. 29, 2000 | 11:02 a.m.

If Steve Wynn wants to retain control of Mirage Resorts Inc., he does have an option -- a sell-off of the company's assets in an attempt to boost Mirage Resorts' share price.

But the value of those assets could also work in favor of suitor MGM Grand Inc., allowing it to boost its offer price well beyond $17 per share, analysts say.

"That could range from making small asset sales to selling off parts of the company," said Robin Farley, analyst with Deutsche Banc Alex. Brown. "At this point, all of those scenarios are possibilities."

Selling off assets is one of a number of options the Mirage Resorts board of directors was expected to consider when it convened this morning to consider the MGM Grand offer. It was not known when the company would have a response for MGM Grand.

Not participating in the board meeting is Mirage Resorts director George Mason, senior managing director with Bear Stearns in Los Angeles. Mason will not participate because of his business relationship and personal friendship with a number of MGM Grand executives, particularly MGM Grand controlling shareholder Kirk Kerkorian.

"He's trying to do what he thinks is best, given that conflict," said Jason Ader, senior managing director and gaming analyst with Bear Stearns in New York.

By selling off assets, Mirage Resorts could raise cash to repurchase shares or pay down debt, raising its share price. But identifying what assets could be readily sold is a point of contention among analysts.

One of the most popular targets for possible sale by analysts is Wynn's prized collection of fine art, housed in the Bellagio. Analysts estimate the value of this art at $300 million to $400 million; Wynn owns half, while Mirage Resorts owns the other half.

The company's filings with the Securities and Exchange Commission indicate Wynn was paid $5.23 million in rent for the paintings by Mirage Resorts in 1999 -- $1.5 million more than Wynn was paid in salary and bonuses that year. The rent for the Wynn collection now stands at $523,633 a month, the filings indicate.

"(Selling the art) is not enough of a defense, but it's enough of a first step," said Joe Coccimiglio, analyst with Prudential Securities. "He could sell his art personally, and buy stock personally."

Mirage Resorts has other assets that could be sold for cash. These assets include several private aircraft, the Shadow Creek Golf Course in North Las Vegas and 600 acres of adjacent land and 55 acres of vacant land next to the Bellagio.

Estimating the value of these assets is tricky, since they aren't individually reported on Mirage Resorts' balance sheet.

The company reported $3.97 billion in "property and equipment" assets as of Dec. 31, 1999. These assets included $632 million in land, $118.2 million in "joint venture and other investments," and $1.93 billion in "furniture, fixtures and other equipment."

CS First Boston estimated the aircraft and Shadow Creek holdings were worth 80 cents to $1.15 per share, while the undeveloped Strip land could be worth $1.38 to $1.52 per share, or $5 million to $5.5 million per acre.

In a separate report, Dave Ehlers, chairman of Las Vegas Investment Advisors, estimated the value of these "hidden assets" between $500 million to $1 billion, citing opinions from "former (Mirage Resorts) employees and knowledgeable observers."

CS First Boston concluded these assets could allow an acquiring company to safely boost its offer as high as $25, while Ehlers estimates a bidder could offer just under $30 per share.

"There can be little doubt that potentially interested acquirers are not giving serious analytical thought to what the real values of a (Mirage Resorts) takeover may be," Ehlers wrote in a report.

Another possibility is that Wynn and Mirage Resorts could unload some of Mirage's resorts. One particular property seen as a possible sales opportunity is the Beau Rivage in Biloxi, Miss.

But the poor performance of the property over the past year -- a significant factor in depressing Mirage Resorts' earnings -- could make it difficult to find a buyer at a price near the $685 million Mirage Resorts paid to build the resort, said Lehman Bros. analyst Stuart Linde.

"If they sold Beau Rivage, they'll get a lot less for it, and take a big tax (write-off)," said Linde. "But I don't think they'll throw in the towel over after 10 months.

"The Beau Rivage is a great property. They just spent too much money. I don't think (selling Beau Rivage) will stop the stock from sinking ... they're not going to sell at these valuation levels."

Other analysts, however, believe other companies -- particularly Harrah's Entertainment Corp. -- may still be interested.

"Harrah's wants to be in Biloxi, and they're not there now," Coccimiglio said.

Ehlers believes Harrah's would be able to boost the value of the struggling Mississippi resort through its part ownership in Las Vegas-based National Airlines.

"I would think that Harrah's really possesses the keys to the kingdom," Ehlers said. "They could start four to five flights a day to Biloxi. There's a great number of fits between these guys.

"Harrah's has a very important bargaining chip (in National)."

At the extreme end of possibilities is the option of selling off virtually all of Mirage Resorts' properties, retaining only the high-end Bellagio and the undeveloped land next door. This would allow Wynn to retain the company's best performing property, give him room for future development -- and, perhaps most importantly, remain in charge of his own company.

Some of those assets -- especially the Mirage and Treasure Island -- would be attractive acquisition targets, particularly to Harrah's, Coccimiglio said. But MGM Grand is probably far more interested in acquiring the Bellagio, which generated $260 million in cash flow -- nearly one-half the total cash flow generated by Mirage Resorts' wholly-owned hotel-casinos in 1999.

"You're then saying, 'Take my less attractive properties,"' Coccimiglio said. "Will he get enough of a price for those assets?

"If he sells everything but the Bellagio and the land, he can use that to pay down debt and buy back stock. But you'd have to do a lot more work to see if that's a good strategy or not."

The other issue is whether such properties as Mirage and Treasure Island would be worth as much when broken off from the Bellagio.

"Would the parts of Mirage be worth more than the whole?" Farley said. "That's the question."