An IPO for MGM's Macau has been long rumored and we finally have details on how the deal will be structured - MGM's stake will actually increase by 1% to give them a 51% majority control position.
MGM's sometimes controversial partner, Ms. Pansy Ho, will have her stake reduced to 29% while the remaining 20% is sold to the public. In a related transaction, Ho will purchase $300 million in MGM notes.
I actually spent the morning reading the Wynn Macau annual report and while there are few zingers (Cotai still hasn't been approved by the government despite Steve basically saying 'any day now' during the last conference call), the one inescapable fact is how much money they are making over there. It's staggering.
MGM historically hasn't been as successful in Macau as Wynn but that's been on an uptick and being able consolidate the affiliated company on their books should help their financial picture.
Here's Jeff Simpson's take on the morning's news:
MGM Resorts made an important announcement about its Macau joint venture this morning, a deal that I think will be a big plus for the Strip's biggest operator. In a deal with partner Pansy Ho, the JV will sell 21 percent of its ownership shares in an initial public offering -- all supplied from Ho's current 50 percent stake in MGM China. 18 percent of MGM China's shares will be sold through the proposed IPO and another 3 percent will be made available as an over-allotment -- all 21 percent will come from Ho's half-stake in the JV. MGM Resorts will buy an additional one percent of MGM China shares, that coming from the over-allotment. The proceeds of the IPO and of MGM Resorts purchase of the additional 1 percent stake in MGM China go to Ho. Ho, in turn, has agreed to buy $300 million of MGM Resorts senior debt. The deal and the IPO, if approved by the Hong Kong Stock Exchange, will result in:
* MGM Resorts upping its stake in the MGM China joint venture from a 50 percent stake to a 51 percent stake.
* Public shareholders will own 20 percent of the JV.
* Ho's stake in the JV will drop from 50 percent to 29 percent.
This is a great deal for MGM Resorts as it allows them to take control of their Macau JV without diluting its ownership stake because of the IPO. MGM Resorts also is spared having to dig deep to buy out the stake Ho is selling into the IPO. The deal also conveniently allows Ho, who now has a significantly increased stake in and probable operational control of her father's market-leading casino company, SJM, to dilute her MGM China stake and reduce conflict-of-interest concerns.
The challenge for MGM Resorts will be to continue its slow improvement in Macau operations, increasing its market share while Ho's allegiance and contacts will likely increasingly favor SJM.
In a separate deal, the Michael Jackson estate and Cirque du Soleil announced a long-rumored joint-venture to produce two Jackson-themed shows, one of which will tour and the other of which will take up residency in a Strip showroom of an MGM Resorts hotel [ed: most assume this will probably be Mandalay Bay or, less likely, Monte Carlo]. I imagine the Las Vegas show will be a success and will be a plus for all three entities (MGM, CdS and the Jackson estate), the glut of CdS shows notwithstanding.