Kerkorian makes big bet on MGM, Las Vegas

Billionaire Kirk Kerkorian appears ready to bet up to $420 million MGM Grand Inc. is poised for an earnings upturn despite a streak of bad luck at the gaming tables this quarter.

Today's announcement that MGM plans to buy back up to 12 million shares -- effectively boosting Kerkorian's stake in the company to 78 percent from 62 percent -- also signals his confidence that Las Vegas is on the verge of a boom in visitor volume, analysts said.

MGM stock jumped $4.50 a share, to $31.125, in mid-morning trading today after the company said its board had approved the purchase of up to 12 million shares of common.

MGM has about 58 million shares outstanding, 36 million owned by Kerkorian.

MGM offered to repurchase almost 21 percent of its stock at $35 a share, or a 37.5 percent premium over Monday's closing price.

That prompted the stock to jump despite the simultaneous announcement that second-quarter earnings will drop to 25 cents to 30 cents a share from the 56 cents a share MGM earned in the 1997 second period.

MGM said that while hotel occupancy, casino volume and customer counts have been strong so far this quarter, the average hold percentage for table games is running "in the low teens, compared with an historical average of about 20 percent."

"There's about 5.75 million shares of MGM sold short," said analyst Dave Ehlers of Las Vegas Investment Advisors Inc. "That, coupled with the 12 million share buyback program, creates demand for almost 18 million shares."

Short sales are made by investors who believe a company's stock price will drop.

"It now appears that Las Vegas visitor counts will be up this quarter after several months of flat or declining volume," Ehlers said.

"In addition, even if MGM has a relatively poor quarter due to bad luck at the tables, they're coming to the end of their $700 million expansion project, which should boost visitor counts and eliminate construction disruptions.

"Look at it as a $420 million bet by Kerkorian on the future of Las Vegas and the MGM," Ehlers said. "What do you think it means when somebody like him makes a gamble that big?"

MGM said the repurchase plan would begin July 2 with a cash tender offer of $35 a share for up to 6 million shares. The offer would expire July 31, unless extended by the company.

MGM said it expects to buy back another 6 million shares through an additional tender offer or offers, depending on market conditions.

The company said it will finance the repurchase program through available cash, cash flow from operations and, if necessary, existing credit facilities.

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