The Associated Press reported Friday that Nevada officials have approved a proposal to allow Dubai World to acquire a larger stake in MGM Grand Inc. Dubai World, the Dubai government’s investment arm, is seeking to increase its total holdings in MGM Grand from 9.4 percent to 20 percent.
MGM Grand is pursuing the deal to offset losses to its plummeting stock price, which has dropped more than 90 percent from a 52-week high last year of $93.19 to its current price of $8.79. Thursday alone, the company’s stock price dropped $1.41 from $10.20.
Jim Murren, the chief operating officer who will replace longtime MGM Grand CEO Terry Lanni on Dec. 1, says that the added investment will help the company weather the ongoing financial crisis. As analysts at the recent Global Gaming Conference noted, a veritable credit ice age and shifting consumer interest toward Internet casinos have many land-based operators like MGM Grand scrambling to find the capital needed to fund ongoing projects.
“We are in troubled times and this is a time, we believe, to face our challenges very quickly,” Murren said. “We have a crisis of confidence in the consumer.”
Yet approval from Nevada regulators is only the first step in garnering U.S. government support for the deal. Dubai World, which is already highly vested in MGM Grand’s $9.2 billion Las Vegas CityCenter project, must also seek an OK from local and federal authorities and must obtain a casino-operator license in order to share in CityCenter’s profits. Dubai World applied for the license in April.
Meanwhile, with American stock prices highly unstable, Dubai World is not committing to a precise timeline for the purchase.
“We have many plans to work with our friends,” Dubai World chief investment officer Lai Boon Yu said. “It is not a question of if. When depends on market conditions.”
MGM Mirage Inc. said Wednesday that it will spend up to $5 billion to build a massive casino resort whose three towers will dominate the Atlantic City skyline and lift the level of luxury in a city hit hard by competition from slots parlors across the Northeast. The 3,000-room resort, planned to open in 2012, is part of a gamble by casino operators to reverse what is expected to be the first decline in casino revenue in Atlantic City in 29 years by polishing its image in an attempt to lure more affluent visitors.
The MGM Grand Atlantic City will be built on a 72-acre site next to MGM Mirage’s joint venture with Boyd Gaming Corp., the Borgata Hotel Casino & Spa, which has led the market since it opened in 2003.
“If you raise the bar, the market will react,” said Ken Rosevear, president of development for MGM Mirage. “You’ve seen what Borgata has done to that market. This is taking a leaf off the Borgata book.”
The project also expands the company’s use of its MGM Grand brand, which began in Las Vegas in 1973, branched out last week in Detroit and is set for development in Macau this year and in 2008 at Foxwoods in Connecticut, run by the Mashantucket Pequot Tribe. “The MGM Grand brand is something we’re taking around the world,” Rosevear said.
The new resort would offer the largest casino floor in Atlantic City, with 5,000 slot machines, 200 table games and a poker room. Plans also call for a 1,500-seat theater, restaurants, nightclubs, a spa, 500,000 square feet of retail space and a convention center.
The city’s 11 casinos have invested billions of dollars to attract upscale visitors who are drawn by entertainment, dining and shopping options as opposed to day-trip gamblers who ride buses into the city, play for a few hours, then go home. “It’s a very exciting project that is another step in Atlantic City’s evolution to a full-scale destination resort, which is critical given the competition we currently face,” said Joe Corbo, president of the Casino Association of New Jersey.
Atlantic City’s casinos are being hurt by slots parlors that have recently popped up in Pennsylvania, Delaware and New York. Through August, Atlantic City’s gambling revenues are down 4 percent from the same period last year. It will likely mark the first annual revenue decline since gambling began in the city.