It was announced yesterday that MGM Resorts International will buy the remaining 50 percent stake in Borgata that it didn’t already own from Boyd Gaming. This announcement had been anticipated ever since MGM regained a license to operate in Atlantic City. I think this is good news for Boyd because it will give them more financial flexibility to reduce debt and plow resources into updating their current properties and systems, especially after recently announced Las Vegas acquisitions. The real estate of Borgata will also be sold to MGM Growth Properties. Shares of MGM were flat on the open today, but shares of BYD were up more than 3% and MGP were up 2%.
ATLANTIC CITY – Boyd Gaming said Tuesday it is selling its 50 percent stake in Atlantic City’s top casino to MGM Resorts International, the company that owns the other half. It will get $900 million, plus half of any future tax settlement MGM reaches with Atlantic City.
How low have expectations for Boyd Gaming sunk when the CEO can claim on the latest earnings conference call that “This was a solid quarter for our operations” and “Growth resumed in our Nevada business, as our Las Vegas Locals and Downtown Las Vegas operations both achieved positive (cash flow) comparisons.”. Really??? Revenue increased by 1% in both segments and the company posted a loss again. Shareholders need to demand something more aggressive from Boyd Gaming. The core problem is the Boyd family controls about 30 percent of the company’s stock, and the family doesn’t seem willing to do anything radical to shake this company out of its slump.
What about conversion into a Real Estate Investment Trust (REIT)? Boyd’s CEO has told investors last week that the company will study the possibility of spinning off real estate into a REIT, but that the process seems long and complicated, and the company won’t provide shareholders with updates until the internal study is completed. Management cites the capital structure (i.e. high debt levels) as one reason why REIT conversion might not be possible. Well, why doesn’t Boyd clean up its balance sheet and then grow from a position of strength? Borgata is a large part of Boyd’s revenues, and is doing better than the Atlantic City market as a whole. Now that MGM has re-obtained a gaming license, now is a good time to sell Boyd’s 50% share of Borgata to MGM. Boyd can use the cash to shore up its balance sheet.
What about the mid-western/Peninsula properties, can they be traded to GLPI, and Boyd can take back shares in return? This would shore up Boyd’s balance sheet as well. The nice thing about writing a blog about gambling is I can throw out wild and crazy ideas.