Dubai World to Invest $5.1 billion in MGM Mirage

On August 22nd, 2007, the government officials of Dubai announced that they will invest $5.1 billion in MGM Mirage, helping the Las Vegas based company in their real estate expansion. Casino gambling is not allowed in the U.A.E. or any country in the Middle East like Saudi Arabia and Kuwait because it is in direct violation of the Shariah Law.

Kirk Kerkorian, who holds 54% of MGM Mirage wants to invest more on hotel, housing and entertainment establishments to scale down the dependence of MGM Grand on gaming. Dubai, which has a lot of money because of an oil boom, plans to spend $13.5 billion in business acquisitions.

MGM shares improved $6.81 or 9.16% to $81.13 in just twelve months. Chris Wiles, the portfolio manager from the Allegiant Asset Management in Pittsburgh, which owns about 300,000 shares in MGM said that the company is currently looking for partners who can help them with their management business interests.

Dubai World, a government controlled organization will pay $84 for each of 28.4 million shares of MGM, 13% more than their closing value on Tgabuesday’s market. Dubai World will invest $2.7 billion for MGM’s share in CityCenter.

Terry Lanni, the MGM chief executive said that Dubai World’s experience in the real estate business together with their expertise in the area makes a competitive edge against their competitors. Dubai World will buy half of the 9.5% shares in MGM and half from the other investors in the company.

Larry Klatzkin, an analyst from Jefferies and Company in New York said that it is a good deal for Dubai World. Jefferies and Company has a target price of $112. The other properties of MGM in Las Vegas are the Mirage, Luxor and Bellagio.

90 year-old Kirk Kerkorian was a shareholder in the Metro-Goldwyn-Mayer movie studio in 1970 and has bought and sold the MGM movie studio 3 times since then. In 1981, he launched the MGM Grand casino, making it the largest casino in the world and in 2000, he bought the Mirage Resorts, the owner of the Bellagio casino for $6.4 billion. On November 2006, Kirk Kerkorian offered to buy the 15 million MGM shares for $55 each which increased the worth of the stock 16%. But he settled for 450,000 shares.

On May 2007, Kerkorian said he was considering other options for his share in MGM, causing renewed interest in the company. But one month after he said that he will not pushed through with those plans, dismissing talks that the company will be sold after the stock improved 37%. Wiles said that it is good evidence that Kerkorian thinks that the company has a good future ahead.