Suggestion by Paul simenauer on 2007-12-18 06:39:57
MGM's operations in Macau need to be clarified. MGM operates in Macau through a JV with Stanley Ho's daughter. Stanley Ho owns 8 casinos in Macau. Ho is sometimes nicknamed "The King of Gambling", reflecting the government-granted monopoly he held of the Macau gambling industry for over 35 years. Also note that Kirk Kerkorian, through Tracinda, owns a 55% stake in MGM, giving him control over any important corporate decisions as well as control of the board. However, this is a positive in the sense that Kerkorian is a self-made billionaire and Tracinda provides extra backing in the event the company defaults on its debt obligations.
Note by Yinan Zhu on 2007-12-18 09:59:57
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Suggestion by Paul simenauer on 2007-12-18 06:22:01
MGM's stake in CityCenter that the company sold to Kerzner/Dubai World and the share tender by infinity world will lower the company's credit facility by ~$3.5B, based on presentations made at the Deutsche Bank Gaming Confrence (note that this is pro forma, but the proceeds from this stake will be put towards reducing bank debt). Basically, management has pointed out that this transaction has lowered MGM's risk profile (levered 3.8x EBITDA now, instead of 5.2x). Regardless, casino companies typically use large amounts of debt on their balance sheets, and that MGM is fairly levered should come as no surprise. The most important question with casinos is to figure out if the company is able to earn a return on invested capital that is just slightly above its WACC due to the high CAPEX casino operators incur. For MGM, this is currently negative due to its substantial investments that the company has made in recent years (~-4% according to Bloomberg), but I believe Kirk Kerkorian and MGM's experienced management team are capable of handling these projects, and MGM is levered to favorable global trends, especially the emergence of a global middle-class.
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--Jay 14:18, December 19, 2007 (PST) Interesting points. It sounds like you follow gaming pretty closely; Macau seems very well positioned to blow up (in a good way). Would you mind posting reference links to the sources you mention (i.e., Deutsche Bank Gaming Conference and Bloomberg)?
Also, you should craft an argument on the Bulls tab of MGM with these investing hypotheses!