MGM Mirage Has Dubai Looking to Increase Ownership
Dubai World was given permission to raise its stake in MGM Mirage by various state gambling regulators, allowing the financial arm of the Dubai government to purchase up to 14.75 percent of the casino giant. Dubai World currently owns 9.4 percent of MGM.
New Jersey state regulators approved the possible transaction this week, following previous acceptance of the deal by officials in Michigan and Nevada. MGM Mirage stock rose almost 20 percent in response to the news, going from a price of $33.25 a share to $38.77.
Dubai may eventually increase its ownership of MGM to 20 percent, depending on further approval by Michigan regulators, who had ok'ed the move up to 14.75 percent in April.
Dubai has said that, in addition to their investment in MGM Mirage directly, they will also own 50 percent of the CityCenter condo/hotel casino and resort complex currently under construction.
While Dubai's interest in acquiring a larger part of MGM was good news now to Wall Street, there remains the question of MGM Mirage's commitment to the casino industry. Recent financial troubles for the big Las Vegas casinos have been tied to the diversification of these enterprises away from a predominantly gambling focus to a broader entertainment and retail approach.
The "recession-proof" protection of casinos has been lost as new revenue streams have not been resistant to economic swings, a postulate known as the Bradley Theorem, after its author, OCA'S own Sherman Bradley.
Dubai's initial investment into MGM Mirage signalled the company's move to a hospitality-based product, with less emphasis on gambling, made necessary by Islamic laws preventing Dubai from being involved in gaming.
As the country's ownership increases, will MGM be forced further away from the casino industry, and into businesses subject to the varying winds of economic turbulence?
