http://online.wsj.com/article/SB300...tml?mod=WSJ_HomeAndGarden_sections_Commercial
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MGM Mirage to sell Borgata
Amid dispute with gambling regulator, company would sell its stake in New Jersey casino
By ALEXANDRA BERZON, JONATHAN CHENG And JEFFREY MCCRACKEN
For years, New Jersey regulators have raised concerns about the suitability of casino company
MGM Mirage's business partner in China. Now, MGM Mirage has an answer: cash out of Atlantic City.
The company plans to divest its 50% stake in the Borgata casino resort, a person with knowledge of the negotiations said last week. Although it has been scouting for buyers it hasn't come to a deal, according to two people with knowledge of the talks.
MGM Mirage hopes that its plan to sell its Atlantic City interests will convince New Jersey regulators to agree to curtail their regulatory oversight of the company. Any additional scrutiny has the potential to cause problems with MGM Mirage's business elsewhere.
MGM Mirage disclosed last year that New Jersey's Division of Gaming Enforcement had issued a confidential report saying the company should disassociate from Pansy Ho, MGM Mirage's joint venture partner in Macau. It labeled her an "unsuitable" business partner.
The filing didn't elaborate on why Ms. Ho was deemed unsuitable. But in 2005, New Jersey's Division of Gaming Enforcement reviewed MGM Mirage's Macau joint venture with Ms. Ho and submitted a report to the state gaming commission noting that "over the years there have been numerous public allegations suggesting that
Stanley Ho, the father of MGM's joint venture partner Pansy Ho, has ties to Asian organized crime." Mr. Ho has never faced charges and has disputed the accusations.
Spokespeople for Ms. Ho haven't responded to requests for comment.
A person familiar with the situation said MGM Mirage is seeking an agreement with New Jersey to avoid a hearing before the New Jersey Casino Control Commission and a potential ruling that the company isn't fit to do business in the state. Such a ruling could precipitate inquiries in other states where MGM Mirage operates or damp enthusiasm for a possible initial public offering of the Macau joint venture's assets on the Hong Kong Stock Exchange later this year.
MGM Mirage spokesman Alan Feldman said the company disagrees with the report deeming Ms. Ho an unsuitable partner. He declined to elaborate. Peter Aseltine, a spokesman for New Jersey's Division of Gaming Enforcement, declined to comment.
Nevada regulators, after a two-year review, cleared MGM Mirage's Macau partnership, determining that the relationship posed no threat to MGM or to the state of Nevada, according to Nevada Gaming Control Board member Randall Sayre. Two other states—Illinois and Michigan—haven't undertaken reviews. MGM Mirage said Mississippi discussed the Macau partnership with the company but didn't investigate further.
MGM Mirage's decision to leave Atlantic City is an indication of how the broader gambling business has shifted to Asia. Gambling revenues in Atlantic City are at their lowest point in more than a decade, while Macau is expanding rapidly. Macau has now surpassed Las Vegas in gambling revenue and showed 48% year-over-year growth in December.
MGM Mirage had initially tried to enter Macau as the enclave was opening up to foreign investment in 2002, but wasn't among the three concession winners. It then partnered with Ms. Ho in the MGM Macau Grand. The joint-venture still has the smallest market share of the Chinese territory's six licensed operators, but MGM Mirage believes it is poised to grow.
In the past, Ms. Ho has said that she is independent of her father. However, she is, among other things, managing director of Hong Kong-listed
Shun Tak Holdings Ltd., which her father founded and continues to run as executive chairman. Ms. Ho also sits on the board of the holding company through which Mr. Ho controls
SJM Holdings Ltd. She acquired her license from her father's SJM, which in 2004 sold its one casino "subconcession" to her joint-venture with MGM.
Analysts say MGM Mirage's share of a Hong Kong offering could be as high as $500 million, which could help relieve its debt from U.S. casino projects.
In Atlantic City, MGM Mirage owns half of the Borgata hotel, along with partner
Boyd Gaming Corp., which manages the property. It had an original price tag of $1.1 billion when it opened in 2003. Boyd and MGM Mirage have since invested an additional $600 million.
The Borgata's gambling revenue declined 5.9% last year compared to a decline of 13.2% for Atlantic City as a whole.
Potential buyers so far have shown little interest in meeting MGM Mirage's asking price for its half, according to people with knowledge of the situation. Those talks included several investors and casino companies. Among them was Boyd, which has the right to match any offer.
The company has been asking for between $700 million and $850 million for its stake, representing a multiple of 7-8 times earnings before interest, taxes and amortization, according to several people familiar with the talks.
Interested buyers feel the business is worth about $500 million to $550 million, said these people.
A Boyd spokesman declined to comment. Mr. Feldman said he could not comment.
