MGM buys half of Borgata stake

MGM buys half of Borgata stake from Boyd Gaming

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The largest casino operator on the Las Vegas Strip, MGM buys half of Borgata Hotel Casino & Resort’s stake. Boyd Gaming and MGM Resorts International are co-owners of Borgata parent company Marina District Development Holding Company.

MGM buys half of Borgata stake – some numbers

MGM Resorts International agreed to buy 50% stake in Atlantic City’s top casino from Boyd Gaming. The company already holds the other half of the stake. The transaction was valued at $900 mln. About $600 million will be acquired by Boyd in net cash proceeds following deducting its share of Borgata’s debt. It will be up to MGM to assume and refinance Borgata’s debt, that is around $600 million.

Then, Borgata’s real-estate assets will be sold to MGM Growth Properties LLC for around $1,175 billion.

Boyd said:

“While we are pleased with the performance of this property, this transaction is an attractive opportunity to immediately unlock significant value for our shareholders.”

Atlantic City’s crisis

The proceeds will be used by Boyd to reduce debt and the deal is expected to be complete in the third quarter of this year. The price tag of Borgata during its opening in 2003 was $1.1 billion. Gambling industry in Atlantic City has been facing crisis due to increasing competition from neighbouring states. Year 2014 was particularly hard, as four of the city’s 12 casinos had to close its door and the fifth casino shed over 1,000 employees. Four casinos have closed their doors over the past few years due to competition from Pennsylvania, New York, Massachusetts, and Connecticut as it took away gamblers that used to only have A.C. casinos. A week ago, New Jersey lawmakers agreed to bail out the troubled region.

Boyd Gaming CEO Keith Smith explained that Boyd intends to use the sale proceeds to decrease debt and strengthen the company’s balance.

Boyd Gaming CEO Keith Smith:

“While we are pleased with the performance of this property, this transaction is an attractive opportunity to immediately unlock significant value for our shareholders,”
 MGM Resorts said:

“While the market continues to experience challenges, Borgata has outperformed and differentiated itself as the undisputed leader in the city.”

Even though MGM buys half of Borgata stake from Boyd Gaming, Boyd Gaming has been very active purchasing properties in 2016. Back in April, Boyd Gaming unveiled the acquisition of Aliante Casino Hotel & Spa in North Las Vegas and the purchase of the Las Vegas assets of Cannery Casino Resorts LLC at a price of $230 million.

MGM’s plans

MGM will integrate its customer-loyalty program – M life Rewards with Borgata Casino, and will monitor daily operations of the venue once the sale is finalized.

MGM Resorts International CEO Jim Murren:

“Borgata is the premier resort in Atlantic City and a great addition to our growing presence in the Northeast,” said”While the market continues to experience challenges, Borgata has outperformed and differentiated itself as the undisputed leader in the city. Our decade-long partnership with Boyd Gaming has been a great one, and Borgata’s talented employee base will complement and strengthen our more than 60,000-member worldwide MGM Resorts team. We are excited about the opportunity to bring our market-leading loyalty program, M life Rewards, to the resort and integrate our operations, to position Borgata for further growth.”
Michael Pollock, managing director of the casino-research firm Spectrum Gaming Group:

“[The company] is becoming a major force in the East Coast, from its National Harbor project in Maryland to its project in Massachusetts. a clear advancement of the classical hub-and-spoke business model, which is becoming very dominant in gaming.”

The MGM corporate family controls Bellagio, MGM Grand, Mandalay Bay and The Mirage in Las Vegas and MGM Macau in China.

About ten years ago there was a plan for MGM Grand Atlantic City but it was scuttled because of economic conditions. In 2010, MGM had been shopping its share of the Borgata.

Despite the fact that MGM was already in New Jersey with its part-ownership in Borgata, the new deal gives MGM a full stake in the future of the New Jersey casino market.

The fact that MGM buys half of Borgata stake from Boyd Gaming is very important for MGM. To begin with, the deal enables MGM Resorts International to entirely own and control Atlantic City’s best performing casino. Secondly, it is a great opportunity for MGM to extend its online gambling presence as Borgata Hotel Casino & Spa is already having a license to provide online gaming operations in New Jersey. Lastly, the acquisition may show MGM’s decision to a focus on developing online gambling besides poker. Borgata is the online casino market leader in New Jersey.

What is more, MGM Resorts is now concentrating on strenghtening its position in the East Coast. The company plans to open a casino this year in National Harbor Maryland and a casino in Springfield, Massachusetts in the future.

The fact that MGM buys half of Borgata stake from Boyd Gaming ends a partnership between the two companies which earned $812 million in net revenue for the twelve months ended March 31.

Dan D’Arrigo, Executive Vice President and CFO of MGM Resorts International:

“We expect MGM Resorts to remain net leverage-neutral, as we fully consolidate Borgata’s cash flows into the MGM Resorts portfolio. Looking ahead, we believe the impact of the transactions remain consistent with our focus on further deleveraging the balance sheet.”

Proposal to bailout Atlantic City

Additionally, MGM buys half of Borgata stake from Boyd Gaming in an interesting moment as last week, New Jersey Governor Chris Christie signed into law a proposal to bailout Atlantic City if the city does not recover its finances within five months. Atlantic City will get $75 million in loans in the meantime.

There is also a chance that New Jersey will allow for casino gambling in the northern part of the state. Atlantic City had a monopoly on casinos since the 1970s, but voters in the state will now decide on a referendum if they want to allow two casinos to be built at least 72 miles from Atlantic City.  If the casinos are approved, Atlantic City’s mayor expects that at least three of the remaining casinos in his city will shut down.

MGM buys half of Borgata stake from Boyd Gaming was last modified: June 7th, 2016 by CasinoNews.Today
Source: Forbes