MGM MIRAGE spending big on stock buyback

Wednesday, Aug. 29, 2001 | 11:18 a.m.

Las Vegas-based casino giant MGM MIRAGE announced today plans to buy back as many as 10 million shares of its own stock -- an investment worth some $290 million at today's stock price.

The share repurchase program was authorized by the company's board of directors, and has no expiration date. The amount authorized represents about 6 percent of MGM MIRAGE's outstanding stock.

Such moves typically help boost stock prices by creating demand for shares and increasing earnings per share by reducing the share base. Still, the announcement did not have much immediate effect -- MGM MIRAGE traded at $29.08 this morning, up 8 cents.

MGM MIRAGE had been an aggressive buyer of its own stock as MGM Grand Inc., but suspended these repurchases when it bought out Mirage Resorts Inc. in May 2000 for $6.4 billion. Since that time, the company has devoted much of its cash flow to paying down debt.

The company now has $5.2 billion in debt, down by about $945 million since the Mirage takeover.

"This program puts another tool in our belt, another use of cash," said MGM MIRAGE Chief Financial Officer Jim Murren. "It does not detract from aggressive reinvestment in our existing casino hotels, or building new properties, which we're keen on doing and are doing. And it doesn't derail debt reduction. We're throwing off enough cash (flow) to do everything we need to do."

MGM MIRAGE has been able to stay ahead of analyst earnings expectations despite a slowing economy, but its stock has not reflected this. The stock now trades under $30 per share, down from a high of $38.81 reached last fall. Company officials have been outspoken in their frustration over this trend.

"Not many companies are performing better in 2001 than they did in 2000 in this economy, yet we are," Murren said. "When you think about that, it only makes sense ... to have that (stock repurchases) as an option. Our stock is undervalued, and our industry is undervalued.

"We've been aggressive in the past (in share repurchases), and we're not afraid to invest in ourselves. Many times, that's the best investment we can make. It's probably long overdue."