Kirk Kerkorian made an offer Thursday to buy all of the shares of MGM Grand Hotels that he does not already own for $18 cash each, or a total of $126 million. The financier already owns about 70% of the company, which operates hotel-casinos in Las Vegas and Reno.
The news sent the company's stock to $17.125 on Thursday on the New York Stock Exchange, up $2.75 from Wednesday in heavy trading. Previously, the highest price at which the company's stock has traded in the last year was $15.25.
The announcement by the financier noted that the proposal is subject to various conditions, including "obtaining the necessary financing." A spokesman said Kerkorian has "several options" for financing.
It was just last fall that Kerkorian increased his MGM Grand holding to about 70% from 50.2%. At that time, shareholders tendered 4 million of the 5 million common shares for which Kerkorian offered $12 each.
Stephen D. Silbert, a Los Angeles lawyer who acts as Kerkorian's spokesman, said at the time of the previous offer that the financier then had "no current intention" of seeking 100% ownership.
On Thursday, Silbert said Kerkorian's wholly owned Tracinda Corp. made the new offer "because it affords MGM Grand's stockholders the opportunity to realize a significant premium over current and recent market prices."
Kerkorian long has been known in financial circles for keeping tight secrecy about his frequently changing business strategies.
In response to a question Thursday, Silbert said the new offer for the MGM Grand shares still held by public investors was "not connected" to the recently disclosed exploration of "various proposals" for MGM/UA Entertainment Corp., an affiliate 50.1% owned by Kerkorian.
As stated by Culver City-based MGM/UA, the proposals include the possibility of restructuring the company and selling one or both of its movie studio subsidiaries, possibly through a rights offering to MGM/UA stockholders.
Divided in 1980
In May, 1980, Kerkorian successfully split the original company, then known as Metro-Goldwyn-Mayer, into the present publicly traded movie and casino firms.
The casino firm ran into heavy problems after a fire at the MGM Grand Hotel in Las Vegas killed 85 and injured more than 200 in November of the same year.
A Wall Street analyst said Thursday that the firm's operating earnings in fiscal 1984 were $58.9 million, compared to $72.1 million in the year before the fire.
Without a major strike against Las Vegas hotels last year and MGM Grand's heavy legal costs related to litigation over the fire, he said, the company might have earned about $65 million.
Two months ago, MGM Grand settled a suit against 28 private insurance carriers for $76 million reimbursement on claims it had paid to fire victims. The company still has a pending suit for $90 million in insurance claims for property damage and reconstruction costs.
The analyst, who spoke on condition that he not be named, said the principal advantage Kerkorian would have in taking MGM Grand private is that "the cash flow could be used anywhere, not just in the hotel."
He said he thought $18 a share was "a pretty good price."
Alvin Benedict, chairman and chief executive of MGM Grand, issued a statement saying that a committee composed of outside directors will review the offer and that the company also will "seek the advice of an investment banking firm."
Kerkorian's Tracinda said in its announcement that the proposal would involve merging a new company with MGM Grand. Each share of MGM stock held by the public would be "converted into the right to receive $18 in cash," it said.
The announcement said the offer also is subject to approval by MGM's board and shareholders and any necessary regulatory, lender or other approvals.