MGM Resorts International has announced that it is buying back 10 million of its shares from one of its main stakeholders Tracinda Corp.
The company said that it will be paying $32.75 per share, or $327.5 million in total for the deal which would amount to a 1 percent discount to the stock’s latest price.
Tracinda Corp. is the fund that is managing the late billionaire investor Kirk Kerkorian’s estate. Tracinda will be left with 47.1 million shares, or 8.3 percent, of MGM Resorts’ available common stock post the sale.
In a statement Jim Murren, chairman and chief executive of MGM Resorts said
We believe today’s announcement represents a prudent and efficient way of buying back a considerable amount of our stock at an attractive price. This transaction remains consistent with our stated long-term strategy of utilising our cash to maximise value for our shareholders while maintaining a strong financial position
MGM Resorts said that the deal will be carried out later this week and will be executed under the $1.0-billion stock buyback program announced recently. Stock repurchases typically indicate that the company has an optimistic outlook on long term growth and believes the current trading price to be undervalued.
MGM Resorts is intending to make the Tracinda purchase using borrowings available as a part of its senior credit facility. It will be paying off the debt with the funds expected from the recent deal under which its Maryland property MGM National Harbor casino resort was sold to a subsidiary MGM Growth Properties LLC for $1.1875 billion.
Analysts from Deutsche Bank Securities Carlo Santarelli and Danny Valoy said that the deal is likely to be a net positive for the company as it is making an appropriate use of the share buyback offer and reduces Tracinda’s stake.
The deal also is in line with the last wishes of Kerkorian who died in 2015. He had asked his heirs to liquidate the stake held by him in MGM Resorts. At that point in time he was the largest single shareholder with a 16.19-percent stake. Kerkorian has mandated that most of his fortune be used for philanthropic causes.
In filings made by Tracinda with the U.S. Securities and Exchange Commission, the company has said that it will sell the remaining stake it held with MGM Resorts over time. Tracinda noted that there was substantial value in MGM Resorts and was ideal for long term investment.