By Alexandra Berzon and Kate O’Keeffe
Of THE WALL STREET JOURNAL
MGM Resorts International (MGM) Wednesday reached a new deal with Pansy Ho, daughter of Macau casino mogul Stanley Ho, that will eventually give it a controlling stake in their Macau casino venture.
Under the deal, the Las Vegas-based casino operator will get 51% ownership of MGM China Holdings Ltd. after the venture’s initial public offering on the Hong Kong Stock Exchange this year. Ms. Ho will retain a 29% interest in the public company, with the remainder sold to the public and the proceeds going to entities controlled by Ms. Ho. The two partners had each held a 50% stake in MGM China.
Ms. Ho also will buy $300 million of debt-laden MGM Resort’s convertible senior notes on terms similar to its existing 4.25% convertible senior notes due 2015, it said. MGM will get $311 million in proceeds from Ms. Ho in the form of a loan.
The deal is something of a surprise, as observers had expected MGM to gain directly from the proceeds of the IPO.
Yet the deal means that MGM will be able to hold on to and add more revenue and earnings from the venture going forward at a time when the Macau market is growing, even while Las Vegas, where MGM’s core business resides, remains stagnant. That should help MGM to have a healthier balance sheet.
A date for the IPO hasn’t yet been set but is expected in May. The IPO could raise around $1 billion, another person familiar with the situation said earlier this month.
The new deal clears up uncertainty over the management structure of the Macau venture, which was a concern of analysts as it was unclear at times who was making decisions for the venture. On Wednesday analysts said the deal could spark more interest in the forthcoming IPO.
A person familiar with the situation said Ms. Ho will retain her title of chairman and managing director in the venture but that her role will be diminished.
“It’s unambiguous now,” the person said. “MGM controls the company.”
In 4 p.m. composite trading Wednesday, shares of MGM Resorts were up $1.09, or 8.6%, at $13.70 on the New York Stock Exchange.
Macau overtook the Las Vegas Strip as the world’s biggest gambling market in 2006 and last year raked in around $23.5 billion, more than four times the revenues from gambling of Las Vegas Strip casinos in 2010.
MGM is heavily exposed to the Las Vegas casino market and lags behind Macau ventures involving U.S. rivals Wynn Resorts Ltd. (WYNN) and Las Vegas Sands Corp. (LVS) in terms of market share there. MGM, however, has been increasing its share in recent months.
For the Macau casino market, the deal raises questions about Ms. Ho’s next steps. The eldest daughter of the ailing casino mogul’s second wife was at the center of a bitter family dispute for control of his empire, which was resolved last month. The family agreement granted the woman known as Mr. Ho’s fourth wife, Angela Leong, a larger stake in his gambling company SJM Holdings Ltd. (SJMHF, 0880.HK) It also allows Ms. Leong to remain executive director of SJM for six years, according to people familiar with the matter, consolidating her influence on the company’s board.
Additional terms of that deal, including what Ms. Ho received from it, are unclear.
In addition to her stake in the MGM venture, Ms. Ho runs Shun Tak, the transport and property conglomerate that runs high-speed ferries to Macau. That company lacks gambling assets.
A representative for Shun Tak couldn’t be reached for comment late Wednesday in Hong Kong. Brunswick, the public relations firm that represented the interests of Ms. Ho and some of her relatives during the family dispute, didn’t comment on the deal.
MGM China is awaiting land rights to build another property in Macau’s Cotai area, home to Las Vegas Sands’s Venetian, the world’s largest casino. Galaxy Entertainment Group Ltd. (GXYEY, 0027.HK) is set to open a $1.9 billion casino-resort on May 15, while Sands, Wynn and SJM also have plans to expand there.
An additional benefit to MGM of Ms. Ho’s diminishing ownership and control is that the Las Vegas-based casino operator could be viewed more favorably by casino regulators, a person familiar with the situation said. Last year, MGM was ordered to sell its stake in a New Jersey casino after regulators there found the partnership with Ms. Ho troubling because of her father’s alleged ties to organized crime, which the family has denied.
Under the new terms of the deal, however, business dealings with Ms. Ho are likely to continue to ramp up. One of the provisions calls for Ms. Ho and MGM to seek co-investment opportunities in mixed-use developments in China, according to a Securities & Exchange Commission filing on Wednesday.
–A.D. Pruitt and Andrew Fitzgerald contributed to this story.
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