, battered by concerns that an economic slowdown will cut demand for gambling, announced a large buyback of its beaten down stock Wednesday
The move is perhaps best explained by the Rolling Stones:
You can't always get what you want. But if you try sometimes, you get what you need.
Lately, casino stocks have been horrible performers, as investors unload consumer-discretionary names amid increasing signs of a slowing economy.
MGM shares plunged nearly 25% in the past month, falling below their "theoretical bottom" of $84 and leaving investors and analysts puzzled. Dubai World, the investing arm of the Dubai government, had purchased a 4.9% initial stake in the company last year for $84, and in December bought another $424 million of stock in a private transaction for $84.80.
"There is a bid there at $84, but they're not getting it," one surprised buyside analyst who invests in the casino space told
earlier this week, when MGM shares were sliding down to $70.
The buyback now provides a new theoretical bottom. MGM and Dubai World said they are jointly making a cash Dutch tender offer for up to 10 million shares of MGM stock for between $75 and $80.
The offer represents nearly 8.3% of MGM's float. Kirk Kerkorian's investment firm Tracinda Corp., which owns 52% of the company's stock, said it will not tender any of its shares.
MGM shares were up $3.16, or 4.5%, to $73.14 in recent trading.
Though investors have fretted about how well MGM's casinos in the U.S. will perform in an economic slowdown, casino companies actually tend to perform decently during recessions, according to research from Deutsche Bank analyst Bill Lerner.
In a recent note, he said gaming revenue across the casino sector rose 17% annually, on average, during the past four U.S. recessions. The recent downturn in 2001 was the worst of the period, with annual gaming revenue falling 4%.
Earlier this week, Bear Stearns analyst Joseph Greff said he now expects MGM to post earnings per share of $2.93 in 2008, up from his previous estimate of $2.91. But JPMorgan analyst Harry Curtis lowered his 2008 estimate to $2.60 from $2.89.
Curtis is more bearish about same-store growth in MGM's Las Vegas properties, which include the Bellagio and MGM Grand.