MGM: SO IT WAS A DEAL ROADSHOW

Some sort of equity deal was inevitable.  Now that everything is on the table, was it worth a 50% move in the stock in the past month and a half?

The Good:

  • Wholly owned property EBITDA was about $21 million higher than we had projected, but likely in-line with the recently elevated whisper numbers.
  • Aria pulled in $41 million in EBITDA, $10 million higher than we thought.
  • MGM secured a bid for Borgata at about 7.25x our 2011 estimate which looks like a very good price for MGM
  • MGM will get paid the $125 million receivable out of MGM Macau in October and not have to wait for the IPO
  • MGM Macau EBITDA was $83MM in the quarter and we think hold was actually low. 4Q promises to be another strong quarter – which is all good for selling the IPO and yielding net proceeds to MGM at the high end of their expected range.  We will have a follow up note with more details.
  • Raising equity will improve liquidity
  • Jim Murren will get paid another big bonus for raising all this cash

The Bad:

  • Hold percentage was higher than midpoint of normal hold
  • Aria hold percentage was very high.  Normalized EBITDA would’ve been $26 million lower, missing our estimate by $16 million.
  • Kirk Kerkorian thinks the price is right to take a lot off the table.  He may be old but he isn’t stupid
  • Shareholder dilution

The Ugly:

  • Strip Baccarat volume grew 39.6% and 87.2% in July and August, respectively and MGM posts a decline in Baccarat volume (not including Aria) of 6%?  September must’ve been a disaster.  Remember that MGM ripped up 15% the day the August Nevada numbers came out.
  • After seeing these numbers, I’m not so sure that Las Vegas has really improved that much.  What’s the next catalyst?
  • MGM trades at 13x our 2011 EBITDA estimate.  With the cat out of the bag, I’m hard pressed to find a reason to buy this stock here.
  • The company will pay Jim Murren another big bonus for raising all this cash