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Morning Call: Wall Street praises MGM on confirmed sale of Treasure Island to Phil Ruffin

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Phil Ruffin, shown in a 2003 Las Vegas Sun file photo.
Photo: Marsh Starks

MGM executives have just officially confirmed our Vegas DeLuxe exclusive report last night that its Treasure Island property will be sold to former Frontier hotel owner Phil Ruffin for $775 million.

MGM Mirage and Ruffin Acquisition LLC officially announced this morning that they have signed an agreement for $775 million. Phil Ruffin wholly owns Ruffin Acquisition LLC.

The purchase price to be paid at closing will be $500 million in cash and $275 million in secured notes bearing interest at 10 percent, with $100 million payable no later than 175 days after closing and $175 million payable no later than 24 months after closing. The notes, to be issued by Ruffin Acquisition LLC, will be secured by the assets of T.I. and will be senior to any other financing.

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Fireworks before the implosion of Frontier.

The transaction is subject to customary closing conditions contained in the purchase agreement, including receipt of necessary regulatory and governmental approvals. The parties expect the transaction to close by the end of the second quarter of 2009. MGM Mirage expects to report a substantial gain on the sale.

MGM Mirage acquired T.I. as part of the merger between MGM Grand Inc. and Mirage Resorts Inc. in May 2000.

“We are extremely proud of the accomplishments of Treasure Island’s employees and management team in making it one of the must-see properties in Las Vegas,” said James J. Murren, chairman and chief executive officer of MGM Mirage. “We are pleased to have been able to work with Phil Ruffin, a known and trusted community partner. This transaction creates value to our stakeholders through significantly increased liquidity and enhanced financial flexibility.”

“We are very excited to be in a position to acquire such a stellar property in Treasure Island,” Ruffin said. “The property is in pristine condition, ideally located in the heart of the Strip and benefits from a wonderful team of outstanding employees. We are financially positioned to close on this transaction once all of the necessary approvals have been received.”

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Frontier is imploded to no more on the Strip.

One top MGM executive told me this morning: “It is good for everybody. Phil is a wonderful man who has proven himself a worthy competitor and friendly neighbor. And, we get a solid price in an uncertain marketplace that requires no financing. That’s a good deal all around!”

Senior JP Morgan banker Joseph Greff, the firm’s gaming specialist, emailed Vegas DeLuxe this morning: “We think it’s a good move by MGM. It enhances its liquidity position given its CityCenter capital investment and near-term debt maturities. We believe this transaction and perhaps other asset sales would potentially eliminate the need for MGM to raise additional equity. We expect the deal to close easily and quickly given that Ruffin presumably still has a Nevada gaming license. We believe it’s also a good deal for the buyer getting T.I. cash flows that were higher than the Frontier.”

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Frontier ends, and the Wynn begins.

Another high-level Wall Street banker specializing in gaming stocks also told me this morning: “Phil was probably the only man left in the industry to be able to do this. He’s bought a great hotel in a great location without the same cost as his competitors on the other corners facing him on the Strip. It’s also likely that he did it without having major tax implications on the sale of the Frontier because of the 1031 exchange rule about re-buying property within 18 months of the sale of a prior property!

“Phil has bought the best available location in Vegas. Look at that corner -- and he’s got direct access from his property right into the Fashion Show Mall, which is perfect for his customer base -- regular people wanting to shop in regular stores!

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Frontier.

“There is going to be huge pressures on room rates and the convention business for the next two years in Vegas. His deal calls for him to pay off the purchase price over two years, so he’s going to weather the potential storms and sit it out comfortably until the economy changes. It’s a smart deal, but it does show that property prices on Vegas real estate and hotel values have dropped 35 percent from the height of it.”

Share prices of MGM shot up more than 5 percent at the opening Wall Street bell, indicating general stock market approval of the transaction. The stock rose to $12.55 from Friday’s closing price. The year’s low is $8, and the year’s high is $90.

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