MGM Reportedly Discussing $7 Billion Sale of Bellagio and MGM Grand

  • Bloomberg reports Blackstone Group is potential buyer
  • Agreement would be leaseback deal, MGM would continue to operate casinos
  • Estimates are $4 billion for Bellagio and $3 billion for MGM Grand
  • Proceeds could go to construction of potential resort in Osaka, Japan
MGM Grand casino resort in Las Vegas at night.
MGM Resorts International is reportedly in talks with Blackstone Group to sell the Bellagio and MGM Grand Las Vegas for as much as $7 billion. [Image: Shutterstock]

Famed Vegas casinos on the block

According to a report by Bloomberg, MGM Resorts International is in talks with Blackstone Group Inc. to sell both the Bellagio and MGM Grand Las Vegas casinos in what could be a $7 billion deal.

Bloomberg’s sources did not reveal details of the discussions and it is possible no deal will even be made.

Blackstone has $154 billion in real estate assets under management

MGM is the dominant casino operator on the Las Vegas strip, controlling much of its southern half. The company owns properties such as Mandalay Bay, Luxor, Excalibur, New York New York, Monte Carlo, and the Mirage, in addition to the Bellagio and MGM Grand.

Blackstone has $154 billion in real estate assets under management, including the Cosmopolitan of Las Vegas, which it bought in 2014 for $1.7 billion.

MGM would still operate properties

The agreement Bloomberg reported would be a leaseback deal.

In a leaseback agreement, the buyer purchases the property and then immediately rents it to the seller. The buyer becomes the landlord and the seller becomes the tenant.

MGM would do this in order to receive a massive cash injection that it could use to invest in the business while still operating the properties.

In many cases, it could be financially advantageous over traditional financing. For Blackstone, such an arrangement would add assets to its portfolio while giving it a predictable revenue stream.

Gaming analyst Brian Egger told Bloomberg that the sale could provide MGM Resorts International $6.5 to $7 billion that it could then put toward a $10 billion gaming resort in Osaka, Japan. MGM is seen as a front-runner for one of the three upcoming gaming licenses in Japan.

Gears have been turning all year

MGM formed a three-person committee in January to look into how it could “extract value from its real estate portfolio.”

Additionally, Bloomberg reported that investment firm Starboard Value LP had amassed a large enough position in MGM so that it could “push for changes.”

the Bellagio could fetch about $4 billion and MGM Grand could go for close to $3 billion

When Bloomberg first reported that MGM was looking into leaseback deals with some of its properties in July, the company did not comment on whether or not Starboard Value was involved. At the time, one analyst believed the proceeds from the sale could go to buy back stock.

Bloomberg’s analysts believe that the Bellagio could fetch about $4 billion and MGM Grand could go for close to $3 billion.

Shares in MGM closed up by about 2.1 percent on Monday after peaking about 4.9 percent higher than Friday’s close. Volume was significant.

At 13.558 million shares traded, Monday’s activity was the busiest since April 30th, when 17.075 million shares traded hands. Shares dipped that day after the company announced plans to cut 1,000 jobs. It reported a 12.6 percent increase in revenue in the first quarter, but a 10 percent decrease in Las Vegas cash flow.