Wednesday, October 13, 2010

It's Not Always Sunny In Vegas (NYSE:MGM)

Las Vegas- MGM shares sunk 11% on Wednesday after the company announced a secondary offering and pre-announced Q3 results. A secondary offering is when a company issues stock after its initial public offering (IPO).

MGM expects to lose 71 cents a share in Q3. The reasons for the larger loss than expected can be attributed to a further impairment on the MGM City Center for approximately 100 million dollars. Catching investors by surprise is the $80 million impairment that will occur on the sale of the Borgata which MGM has a 50% stake in. Allan Edwards the CEO of The Markets Are Open estimated the fair market value of MGM's Borgata stake to be $400 million, but MGM will receive approximately $250 million for the sale. In 2008 at the beginning of the recession MGM sold Treasure Island a smaller hotel located on the Las Vegas strip for $775 million. Even though the Borgata is in Atlantic City and not Las Vegas one would have expected similar or higher price regarding the value of the Borgata as compared to Treasure Island.

With MGM's blunder on the sale of the Borgata it can either be determined that management made a large mistake or the company is facing financial stress.

To see the full MGM report Click Here

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