Bet on MGM, Whatever Deal It Cuts

Last night, Kirk Kerkorian's Tracinda Corp. said it plans to enter negotiations with MGM Mirage (MGM - commentary - Cramer's Take) to buy the Bellagio Hotel and Casino and the City Center properties, MGM's premier assets. The stock is up 28% on the news to $81, and I believe shares are headed to $100.

I have been bullish on MGM over the past 12 months because it remains one of the three U.S. gaming companies that have a permit to build casinos in Macau. That small island off the southern coast of China just surpassed Las Vegas in terms of annual gaming revenue.

A Central Issue

While Macau remains a growth story on its own, MGM's properties in Las Vegas can't be ignored. MGM owns and operates 11 casinos in Las Vegas, including Mandalay Bay, Bellagio, MGM Grand and MGM Mirage. More important, MGM has 125 acres on which it will continue to build new projects, including the $7.4 billion City Center.

MGM's City Center project is currently the single most expensive privately funded project in the Western hemisphere. To give you a sense of just how massive it is, it includes a 4,000-room, 60-story resort and casino; luxury condo towers; two additional hotels/residences; 500,000 square feet of retail and entertainment space; 225,000 square feet of convention and meeting space; and its own fire department.

The project is scheduled to be completed in late 2009 and is located in the heart of the Las Vegas strip. While this is relatively old news, I did get a chance to see the development last week (after I spoke at the Money Show) and was amazed by the actual size of the project. Based on its location, attractions, sheer size and design, the City Center will be the hottest new property and a must-see for everyone who visits Las Vegas.

Pros

That's the gem that Tracinda wants to strip away in this deal. But don't forget to look at the possible positives here. Taking away City Center would remove the developmental risk, where construction delays could be a burden.

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In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research associate at TheStreet.com, where he works closely with Jim Cramer and and writes TheStreet.com Stocks Under $10. Previously, he was the editor of The FXC Newsletter and senior research analyst for Greentree Financial, and passed his Series 7, 63 and 65. He appreciates your feedback; click here to send him an email.