Is the MGM lion about to pounce on Mirage's cuddly white tigers?
Shares of MGM Grand Inc. fell 5% on Thursday on speculation that the casino operator could launch a hostile bid for Mirage Resorts Inc., fueled by reports that MGM Chairman Kirk Kerkorian bought a stake in his company's jungle-themed neighbor on the Vegas Strip.
MGM Grand shares skidded $2.50 to close at $47.25 on Thursday, while Mirage surged $1 to $15, both on the New York Stock Exchange.
News reports said that Kerkorian's investment wing, Tracinda Corp., has bought up to 5% of Mirage's battered shares at or near their recent multiyear lows.
Prudential analyst Joe Cocchimiglio issued a report saying MGM Grand could make an $18-to-$20-a-share hostile bid for Mirage.
"MGM Grand commands the premium multiple among the largest companies with a presence in the major markets of Las Vegas and Atlantic City," he wrote. "Additionally, we think the Street would love the transaction as it would create a much larger company with powerful growth potential."
But analysts said MGM Grand appears unlikely to launch an imminent bid, despite Kerkorian's reputation for making hostile offers to maximize shareholder value.
"Mr. Kerkorian . . . has sent a message that he thinks Mirage shares are undervalued," said Bear Stearns analyst Jason Ader. "But he would never jeopardize the big bet he has made on MGM for the small bet he has made on Mirage."