Dubai World Halts Investments in MGM Shares - For Now - But Las Vegas Firm Still Offers Great Promise From China

From Staff Reports

Dubai World has temporarily halted its investments in MGM Mirage Inc. (MGM), after shares of the Las Vegas hotel-and-gaming firm soared well above the suitor's target price.

A government-run venture investor, Dubai World used its Infinity World Investments unit to purchase 14.2 million common shares of MGM stock at about $84 a piece, for a total outlay of about $1.19 billion. MGM issued treasury-held shares directly to Infinity World, the entertainment, hotel and gaming company said Friday.

Because of the Dubai investment - and because of its own designs on the burgeoning mainland China tourism trade - MGM is viewed by some savvy investors as a way to play China, while still managing risk.

Infinity World Investments now owns 14.5 million shares, representing about 4.8% of total MGM shares outstanding. That also includes nearly 349,000 shares purchased by Dubai World via a cash tender offer made to MGM shareholders. That tender offer, which fell far short of its goal, expired Oct. 5.

On Aug. 22, Dubai World agreed to purchase as many as 28.4 million shares in billionaire Kirk Kerkorian's MGM and 50% of the company's $2.7 billion CityCenter hotel-and-casino project. The group sought to buy half its targeted total of MGM shares through that public tender offer, capping the purchase price at $84 each. But the shares last closed below that price on Sept. 18.

MGM shares closed Friday at $90.73, and have traded as high as $100.50.

Dubai stopped buying shares in MGM because the stock was overpriced. But it will resume purchases - in some form - when the Middle East investor views them as a "good value" again, Sultan bin Sulayem told Bloomberg News.

"We can always buy in the market to achieve the 9% to 9.5% of MGM that we want," bin Sulayem told Bloomberg, declining to specify just what price represents an attractive one for the purchases to resume. "There is no closing window [for Dubai to invest] and we will look at it [again] if the market gets better."

As part of its agreement, Dubai can actually purchase as much as 20% of MGM.

"Dubai is one of the world's most sophisticated investors," and is investing heavily in Asia, with a special focus on China, says Keith Fitz-Gerald, a professional trader and Money Morning contributing editor who is a well-known expert on the Asian market and on Asian investments.
Dubai is making investments throughout the world via its state-run investment fund, and through other investments - such as the MGM deal. Indeed, shrewd U.S. investors would do well to keep a close watch on Dubai for any investment moves it makes, since its strategies may create other openings for retail investors, Fitz-Gerald said in a recent interview.

Indeed, Fitz-Gerald recommends MGM as a great way to benefit from Dubai's aggressive global investing plans, and from China's soaring growth. [For Money Morning's investing report, "Here's Why MGM is a High-Profit Play on China," which includes an interview with Fitz-Gerald, please click here. The report is free of charge].

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