PHILADELPHIA (Reuters) - Billionaire investor Kirk Kerkorian's Tracinda Corp. said on Monday it will explore strategic options for its 56 percent stake in MGM Mirage Inc. and will enter talks to purchase the No. 2 U.S. casino operator's two most prize properties.
Tracinda said putting its majority stake in MGM Mirage up for sale could result in a financial restructuring or sale of the rest of the casino company. Shares of MGM Mirage surged 14 percent to $71.80 in electronic trading after closing at $62.95, up 15 cents on the New York Stock Exchange.
Tracinda said it has made no decision on any restructuring transactions for MGM Mirage, and reserved the right not to pursue any deals.
Tracinda also said it will enter negotiations to buy MGM Mirage's Bellagio Hotel and Casino, and CityCenter properties in Las Vegas.
MGM Mirage said its board will review Tracinda's statements, which were filed with securities regulators and evaluate the implications for the company. MGM Mirage, which will hold its annual shareholder meeting on Tuesday, said it would respond in due course.
The company owns and operates 19 properties in Nevada, Mississippi and Michigan, and has investments in three other properties, MGM Mirage has a market capitalization of $17.8 billion.
The Bellagio generates the greatest cash flow among the casinos on the Las Vegas strip, analysts said. CityCenter is MGM Mirage's latest Las Vegas development, located between the Bellagio and Monte Carlo resorts at the busier end of the strip.
Last month, MGM Mirage said the CityCenter project would be larger and more costly than it had previously estimated, with the construction tab hitting $7.4 billion, excluding land and preopening expenses. CityCenter is slated to open in November 2009.
The project will include 2,700 private residences, a Mandarin Oriental luxury boutique hotel, a 4,000-room resort casino and a 470,000-square-foot retail and entertainment area.
Despite the cost overruns, analysts said confidence about CityCenter's prospects increased when MGM Mirage raised its estimate of gross proceeds from the sale of residential units to $2.7 billion from $2.5 billion.
"I still feel very comfortable with my $85.50 (stock price) target as a minimum value for the company," said Jefferies & Co. analyst Larry Klatzkin, who said he has the highest price target of his peers on MGM shares and believes the stock is undervalued.
A sale or restructuring of MGM Mirage would follow a wave of mergers in the gaming sector. Harrah's Entertainment Inc., the world's largest casino operator, was recently acquired for $17.1 billion by two private equity firms.
Meanwhile, Station Casinos Inc. announced plans in December for a $4.7 billion management-led buyout. Trump Entertainment Resorts Inc. hired Merrill Lynch as a financial adviser to help weigh strategic options, such as refinancing or selling some or all of its Atlantic City casinos, according to media reports.
In January, Tracinda tried to increase its stake in MGM Mirage to more than 61 percent, but failed to buy all the shares it wanted. It currently owns 56 percent.
Kerkorian's Tracinda recently was among the bidders vying for DaimlerChrysler AG's money-losing Chrysler Group. Cerberus Capital Management won the hand of Chrysler last week, but a source familiar with the situation said Kerkorian has not dropped his bid for Chrysler.
Additional reporting by Lisa Baertlein