We believe MGM may be interested in selling other assets. It would seem to make sense for MGM to sell its 50% interest in Borgata back to BYD. BYD already manages the facility and has liquidity. MGM, needs to de-lever and find liquidity. Strategically, it makes sense for BYD to fully control the asset for future cross-marketing benefits combined with an eventual Las Vegas development. Most importantly, the deal would be accretive from both a free cash flow and earnings per share perspective.
BYD is effectively borrowing at an incremental rate under 4%. At 7.5x our projected Borgata 2009 EBITDA, BYD would be paying $800 million, including $350 million in assumed debt, for the remaining 50% of Borgata it does not own. We calculate EPS accretion of $0.07-0.13 at that price, or 11-17% accretive to the current consensus estimate. On a free cash flow per share basis a Borgata deal could generate accretion in the 20% range.
This is a deal BYD probably should pursue.