MGM hints at asset sales after merger, sets cost-savings target

Steve Green and Richard N. Velotta

Thursday, May 11, 2000 | 10:55 a.m.

MGM Grand Inc. on Wednesday spelled out in more detail how it expects to profit from its landmark $6.4 billion acquisition of Mirage Resorts Inc. that is expected to close this summer.

In a Securities and Exchange Commission filing for a proposed $500 million bond issuance, MGM Grand raised the possibility of selling some hotel-casinos after the merger and spelled out how the combined companies can save money and enhance revenue by consolidating operations and capitalizing on economies of scale.

"The sale of non-strategic assets could result in significant proceeds available for immediate debt reduction," MGM Grand said.

Analysts see a big range of assets as possibly qualifying as "non-strategic," ranging from Bellagio's art collection to surplus corporate aircraft to golf course land.

And some hotel-casinos could be sold after the merger, analysts believe.

Joseph Coccimiglio, a gaming analyst with Prudential Securities, and Dave Ehlers of Las Vegas Investment Advisers, concurred that the two companies' aircraft assets can be reduced.

"They're not going to need two air forces," said Ehlers, who estimated Mirage had about $250 million in planes that could be sold.

Ehlers also said Mirage's 600 acres adjacent to Shadow Creek golf course in North Las Vegas could be developed into one of the most exclusive residential areas in the world.

"A group led by Arnold Palmer recently acquired Cypress Creek (a course in California), so I suspect a similar agreement could be reached on Shadow Creek, which is considered one of the outstanding golf courses of the United States and certainly one of the most expensive courses in the world," Ehlers said.

Both Ehlers and Coccimiglio said Mirage's art assets at Bellagio could net cash for MGM.

But the analysts differ on what properties could go on the market.

Coccimiglio said MGM Grand Chief Financial Officer Jim Murren addressed Prudential analysts Wednesday, but would not disclose what properties may be sold.

Coccimiglio said MGM's existing properties in Primm or Mirage's Golden Nugget property in Laughlin may not be strategic for the company. Another possibility: Mirage's downtown Las Vegas Golden Nugget hotel-casino.

Other candidates that seem less likely, Coccimiglio said, would be Beau Rivage, Mirage's entry in the Mississippi Gulf Coast market; and Mirage's Treasure Island on the Las Vegas Strip, which he said does not fit MGM's high-end market profile.

He said he does not expect the company to sell Mirage's Boardwalk hotel-casino property on the Strip because the land it occupies is too valuable as a future development site.

Ehlers said he wouldn't surprised if the Mirage hotel-casino were placed on the block because MGM already has top-end properties in its Mansions development at the MGM Grand and in Mirage's Bellagio.

He said he doesn't expect MGM to let go of the Primm properties.

"MGM has done well mining money out of those properties and with California coming into view (as a site for expanded casino gambling on Indian reservations), they may want to hold onto that property because they may not be able to get out of it what the properties are worth," he said.

He said he expects the company to hold onto Beau Rivage to keep a foothold in Mississippi, even though the market is suffering from a lack of air service, and he concurs that until downtown Las Vegas is on the road to redevelopment, the Golden Nugget is an asset the company may not choose to keep.

"MGM isn't going to tip their hand until they're sure of what they want to do," Ehlers said.

MGM also said it can save money after the merger "through the elimination of duplicative and redundant operating costs, particularly related to overlapping corporate functions and duplicative sales and marketing offices throughout the world."

These initiatives should save $95 million per year, not counting savings from economies of scale in other areas such as purchasing, centralized room reservation systems, promotional discounts and insurance, MGM Grand said.

The casino operator, controlled by billionaire Kirk Kerkorian, also is counting on revenue enhancements by cross-marketing room reservations, restaurants, live entertainment, leisure activities and gaming affinity programs.