Shorting MGM today, after the 27% gap up, on the Tracinda (Kerkorian) news dump (about the Bellagio and City Center)? *I shorted at $79.95. "Shares rose 27 percent, or $17.03, to $79.98 Tuesday. Shares retreated 46 cents in after-hours trading to $79.52. Tracinda's announcement prompted credit ratings agencies to announce they were watching developments closely. Moody's Investors Service, Standard & Poor's Ratings Services and Fitch gave MGM Mirage a negative outlook because of fears that a Tracinda-led leveraged buyout would add debt to the company." http://www.nytimes.com/aponline/business/AP-Tracinda-MGM.html
Somebody please explain how the stock price jumps 25%, yet according to bloomberg the credit default swaps soared from 30k to 184k Maybe I'm just stupid, but I would think it would be a good play to short the stock and sell a CDS.
There were a bunch of bullish comments from analysts today about how this was great for MGM. But then, the serious analysis started coming out after hours, such as the credit rating/debt issue. And let's not forget - Kerkorian is 0 for 2 so far in enhancing share value or successfully implementing a strategy (GM and Chrysler). He does own a large piece of MGM, but so what? Every bullish commentator noted this, but how is it relevant if the carefully crafted yet extremely vague announcement by him is dissected in a serious manner by those who will look at the valuation, debt and credit default swap issues?
This matters because he owns controlling interest at 56%. Therefore he can do a lot of stuff that would not be in the interest of the minority shareholders. This is a very unique situation because the stock rose on short term speculation that private equity is in play. The default risk of the bonds also rose because of the possibility that the company is going to be cherry picked and the current shareholders will be overloaded with debt.
Hey dj. You're exactly right. But the private equity wheel that's been put into motion, essentially, is Tracinda, which Kerkorian obviously owns. So yes, Kerkorian is attempting to start a bidding war for the two crown jewels of MGM (or for the whole enchilada), if he really isn't trying to snatch them up for Tracinda. But if those two assets are sold (Bellagio & CityCenter), whether to Tracinda or another firm, MGM will be neutered. Bellagio accounts for 20% of MGM's revenues. There are some strange angles here. Kerkorian seems to be trying too hard. Everyone, feel free to handicap the odds of a private equity buyout of MGM, and not just in pieces. *An interesting note here is that CityCenter is an unproven asset, as of yet, as it's not even completed, and has some pretty remarkable assumptions for the retail and residential part baked into the model.
It will be very interesting to see how this plays out. The two investment parties involved, shareholders and bondholders, seem to be operating independently of each other. I guess I'm just wondering if there's a moneymaking opportunity involved
It's no just that you're smart. You remember history as well. As far as BLSH: I suck at stock prognosticating and I know NOTHING about balance sheets and stuff. Perhaps these casino deals make sense. In my very humble opinion there's going to be bloodshed in Vegas. It used to be conventional wisdom that gaming was recession proof. The old saw was in hard times people gamble harder. I think that's over. Gaming is pure recreation now. No one plays thinking they'll actually win. A fully educated public spells saturation. IOW's gaming is running out of suckers. Slots and Poker came full force to Broward County this year. Florida (which already had Indian slots/poker) granted licenses to the 4 pari-mutuals in Broward. It was a county by county referendum and only Broward voted yes. Gulfstream Park is the regions major racetrack. It's an absolute jewel. Great location, great racing tradition and now slots/poker. Instead of prospering the owners of Gulfstream, Magna Entertainment are getting their ass kicked! Gulfstream thought the slots would average $500 a day. Instead they're averaging half that. The Seminole Hard Rock Casino in Hollywood (where Anna Nicole died) was roomy and uncrowded the last time I was there. A few of these gaming stocks will see zero before it's all over.