MGM Mirage's plan to exit the mature Atlantic City market in favor of booming Macau removes a year of overhang from the company and should clear the way for a share offering in Hong Kong by June.
MGM Mirage said it planned to give up its New Jersey gambling license by selling its 50 percent stake in Borgata, its lone Atlantic city casino, after New Jersey gambling regulators said the company's Macau partner had links to Chinese organized crime.
In a previously confidential report released on Wednesday, the New Jersey Division of Gaming Enforcement said that from the beginning of its efforts to enter Macau, MGM (Mirage) pursued partnerships with persons that it knew were associated with those aspects of gaming in Macau most heavily penetrated by organized crime.
The enforcement division had previously labeled as unsuitable MGM Mirage's Macau partner, Pansy Ho, daughter of Macau gambling tycoon Stanley Ho, whom the report said had links with Chinese triad members, citing documents from a U.S. Senate hearing in 1992.
Analysts have said MGM Mirage's decision to quit New Jersey should help prospects for a planned Hong Kong IPO for its Macau unit, whose main asset is a 50-50 joint venture casino with Pansy Ho.
It comes as no surprise that they will focus on Macau, which is growing year on year, whereas they are seeing significant declines in the U.S., said Aaron Fischer, head of CLSA's Asia gaming research. The news clears the way for MGM to be more serious about its business in Macau. The operating performance has not been as good as expected. Hopefully, this paves the way for a Hong Kong IPO.
MGM Mirage hopes to raise up to $500 million as early as the second quarter of this year, sources told Reuters in January.
If the initial public offering goes ahead, MGM Mirage, whose largest shareholder is billionaire Kirk Kerkorian, would be the third U.S. casino marquee name since November to float its Macau operations on the Hong Kong stock exchange after Wynn Macau and Sands China.
MGM Mirage's plan to sell its stake in Borgata and give up its New Jersey gambling license, first proposed in February, was approved on Wednesday by state regulators.
MGM Mirage Chief Executive Jim Murren said in a statement: The DGE's (Division of Gaming Enforcement) report acknowledges there is no evidence that Pansy Ho has engaged in any wrongdoing or been accused of any illegal activity.
Macau's transformation from a seedy gambling haven into a Las Vegas-style entertainment paradise since 2002 has meant stiff competition for the elder Ho, although he still controls one of six gambling licenses in the former Portuguese colony.
Sometimes known as the godfather of gambling, Stanley Ho, a patriarch of mixed European and Chinese parentage, heads an extended clan of 17 children born to his four wives.
The report from the New Jersey enforcement division cites documents such as 1992 testimony at a U.S. Senate Subcommittee hearing stating that Ho had direct associations with known members of Chinese triads.
Ho denies these allegations and hasn't ever been charged with a crime.
The report concluded that Pansy Ho's relationship and financial ties to her father, as well as her associations with persons alleged to be associated with organized crime render her susceptible to influence by unsuitable persons.
In choosing to put its Borgata stake on the block, MGM Mirage is going where the money is.
Atlantic City, once the gaming capital of the U.S. eastern seaboard, has been hammered by the recession as consumers cut spending. Revenue from its 11 casinos dived almost 16 percent in February to $261.6 million, hurt also by snowstorms that blanketed the northeastern United States.
In contrast, Macau gambling revenue in February was 70 percent higher than a year earlier at about $1.8 billion.
The report also said Las Vegas-based MGM Mirage's conduct in pursuing and consummating the Macau joint venture raises concerns about its commitment to corporate regulatory integrity.
The gaming enforcement division said MGM Mirage's due diligence and compliance efforts were deficient.
But even as New Jersey's verdict removes the overhang on MGM Mirage, it is unlikely to remove challenges that still face the company in Macau -- weak market share and lack of a growth story.
MGM Mirage, which has come close to defaulting on its debt, has only one casino in Macau, the MGM Grand Macau, and has not shed light on its expansion plans.
MGM Mirage once had plans to build a multi-tower project on 55 acres of land it owns adjacent to the Borgata, but those plans were put on hold several years ago. The company owns the Borgata through a 50-50 joint venture with Boyd Gaming Corp.
MGM said it would place its interest in the Borgata and related leased land in a divestiture trust. The settlement mandates the sale of the trust property within a 30-month period.
If the company has not found a buyer within 18 months, the trustee would then take over the sales process, having another 12 months to conclude a deal.
Shares of MGM fell 4 cents to close at $12.26 on the New York Stock Exchange.