Las Vegas- MGM shares have sunk 22% sine reaching a high of $14.10 on October 12 after reports that more people were visiting Las Vegas. Shareholders are concerned that MGM has announced the sale of their 50% ownership in The Borgata Resort in Atlantic City and have pre-announced another quarterly loss expected in quarter three. MGM also announced they have once again impaired the value of the City Center which is the largest privately funded construction project in the history of the U.S. The pre-announcement of its quarter three loss likely did not come as a surprise to shareholders but there were several other surprises in the report. Investors should be concerned about the value MGM received for the Borgata which is substantially below the book value. Allan Edwards the CEO of The Markets Are Open estimated the fair market value of MGM's Borgata stake to be $400 million for MGM's 50% stake but MGM will only 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. Shareholders also are looking into another secondary offering which will dilute existing shareholders.
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.
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