MGM gains majority control of Macau business

TAGs: IPO, MGM China, MGM Resorts

In a press release issued today from MGM Resorts International, the company announced the following as taken from the press release:

MGM Resorts International has entered into agreements with Ms. Pansy Ho pursuant to which the proposed initial public offering of the shares of MGM China Holdings Limited on the Hong Kong Stock Exchange(the “IPO”) and related transactions will be structured so that MGM Resorts will obtain 51% ownership, and management control, of MGM China upon consummation of the offering.

Some of the major changes under the new restructuring of their relationship, Ms. Ho has agreed to invest in MGM Resorts by purchasing $300 million aggregate principal amount of convertible senior notes issued by MGM Resorts on terms similar to MGM Resorts’ existing 4.25% convertible senior notes due 2015; pending approvals of the Hong Kong Stock Exchange, and there can be no assurance that the proposed transactions will be consummated.

MGM Resorts and Ms. Ho have formed MGM China as a listing vehicle for the proposed IPO. MGM China will become the owner of MGM Grand Paradise, S.A., the Macau company that owns the MGM Macau resort and casino and the related gaming sub-concession. Upon consummation of the IPO, MGM China will be owned (through intermediary companies) 51% by MGM Resorts, 29% by Ms. Ho, and 20% by public shareholders.

The agreement boosts MGM Resorts’ ownership in MGM China to 51% and will permit MGM Resorts to consolidate results from MGM China in its financial statements. This is significant as it will permit MGM Resorts to report financial results with higher revenue and operating income from its booming Macau cohort.

Analysis from Chad Mollman of the Toronto star described the deal with the following sentiments: “While the announcement is a positive development for MGM Resorts, the gaming company continues to be one most exposed to the mature and cyclical Las Vegas Strip market, and we continue to view the shares as fairly valued. We also remain concerned about MGM’s significantly leveraged balance sheet.”


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