MGM Mirage Ups the Ante on the U.K.

The company announces another joint venture to build a casino and entertainment complex there.
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MGM Mirage

(MGG)

continues to bet on the deregulation of U.K. gaming laws, as it announced a plan Tuesday to build a sprawling casino complex outside one of the country's largest shopping centers.

The casino chain and the

British Land Co.

announced a joint venture to spend between $364 million and $455 million on an entertainment and casino complex adjacent to British Land's Meadowhall Shopping Centre. Located in Sheffield, England's fourth-largest city, the Meadowhall boasts 1.3 million square feet and serves 800,000 visitors a week. Once constructed, the casino would be operated by MGM Mirage.

"We are pleased to be pursuing this development with British Land in Sheffield, and this agreement represents a further key element of our ambitious plans to invest in the United Kingdom," said Terry Lanni, CEO of MGM Mirage, in a statement.

As with many of the U.K. deals that MGM Mirage has announced in the last few months, the plan to build in Sheffield is contingent on the U.K. deregulating its gambling laws. While changes to gambling laws have been debated since 2001, analysts predict that a bill could finally pass into law by 2005, paving the way for widespread construction of large casinos all across the U.K.

There is a major sticking point on the taxation of the revenue the big casinos will bring in, but if deregulation proceeds on that timetable, the new casinos could open in 2006.

>More than any other casino operator, MGM Mirage has been moving to capitalize on the changes. A week ago, the company spent $493 million in cash to buy Wembley, a U.K. gaming firm, which owns greyhound tracks in Wimbledon, Manchester, Birmingham, Oxford and Portsmouth, and has a number of stateside racetracks in Rhode Island and Colorado.

In November, MGM Mirage announced a joint venture with Newcastle United, an English soccer team, to build a 100,000-square-foot casino next to Newcastle's stadium. Earlier, the company announced a joint venture with Earls Court & Olympia, to open a 300,000-square-foot gambling hall near the Olympia exhibition center in West London.

Given the lead that MGM Mirage has on rivals and the fact that earnings from any U.K. operations wouldn't likely come for another two years at the very earliest, analysts say that the long-term effect of the expansion isn't yet reflected in the stock. While the size and scope of the deregulation remains to be seen, investors with a long-term outlook might want to consider MGM Mirage.

"We believe the market does not yet provide proper valuation credit to MGM Mirage for this large opportunity," said Marc Falcone, gaming analyst at Deutsche Bank. "Upon better visibility, we believe shares could reflect this." (Deutsche Bank does and seeks to do business with the companies it covers.)

On Tuesday, in reaction to news, shares of MGM Mirage rose 41 cents, or 1%, to $40.56.