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Boston College Law School

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Tuesday, May 22, 2007

Kerkorian and MGM Mirage

Tracinda Corp., the investment vehicle for Kirk Kerkorian, today filed its 17th amendment to its Schedule 13D with respect to its 56% stake in MGM Mirage.  The Amendment contains the following language:

Tracinda Corporation announced today that it intends to enter into negotiations with MGM MIRAGE (NYSE: MGM) to purchase the Bellagio Hotel and Casino and City Center properties. Tracinda also wishes to pursue strategic alternatives with respect to its investment in MGM MIRAGE which may include financial restructuring transactions involving all or a substantial portion of the remainder of the Company. Tracinda has made no decision with respect to any such restructuring transactions and reserves the right not to engage in or approve any transaction.

This is catch-all disclosure that is far from clear.  It does nothing to tell you what Kerkorian really intends.  But according to the Wall Street Journal:

Analysts said the properties Mr. Kerkorian wants to acquire from MGM Mirage are the company jewels: the luxurious Bellagio and the nearby CityCenter, an ambitious $7.4 billion megaproject set to open in late 2009 that combines private residences, boutique hotels, a resort casino and a retail-and-entertainment district.

MGM shares are up 27% in trading today. 

A special committee of MGM Mirage directors will now be formed to negotiate with Kerkorian with respect to his preferred transaction (whatever it might be).  If Kerkorian does agree to acquire MGM's most productive assets or the entire company, expect shareholders to rightfully complain if the price is not perceived as sufficiently high or if Kerkorian attempts to skew the process by rejecting or foreclosing alternative transactions.  Also, I would suspect that we will once again see the hedge funds leading the activist shareholder charge here, asserting themselves even before an agreement is reached in order to shape an ultimate transaction.  Tracinda is a Delaware corporation, and so the plaintiff's lawyers have already also likely sped into Delaware Chancery and filed suits asserting that any transaction with Kerkorian is not "entirely fair".  Hopefully, they will zealously defend their clients and do not use any suit for its settlement value to support their attorneys' fees as they have done before

Update:  MGM Mirage has announced the formation of a special committee of independent directors to consider Kerkorian's statement and strategic alternatives available.

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