Correction: I originally claimed Caesars was purchased by MGM Mirage, instead it was purchased by Harrahs.

I’ve always admired MGM Mirage- they can easily be considered one of the largest hotel companies in the world based on number of rooms and employees - even though they have the majority of their properties in Nevada, but I’ve never focused on them because their corporate mantra was always based around the casino - not the hotel but I think that’s about to change.

From their 2007 10-K Financial Statement, MGM Mirage has over 84,000 hotel rooms currently in operation - making them the 10th largest hotel company in the world (bigger than Hyatt). That 84,000 number doesn’t even take into consideration the massive projects that MGM is currently involved in developing - CityCenter in LasVegas, their joint venture with Kerzner International, the M Resortin South Las Vegas, as well as the MGM Grand Foxwoods, MGM Grand Atlantic City, and the developments in the Middle East.

Most people who read this will say - sure.. They may operate alot of hotel rooms, but MGM Mirage is still mainly a casino operation, which, yes, from the outset - that is what attracts most people to their properties, and where they received over $3 billion in revenue from, vs a little over $5 billion from non-casino operations (rooms, food and beverage, other income - rental income for stores, merchandise, etc). To break it down even further, MGM Mirage received a little over $2 billion in revenue from rooms alone.

That to me is a VERY viable hotel business that alot of people consider a cost of doing for a casino.

Earlier this week, MGM Mirage announced earnings which disappointed the stock market - most of the decline was due to the economy slowing down and gambling revenues declining as people second guess their vacations to casinos, at the same time it was brought up that perhaps it may be a good idea going forward to break up MGM Mirageinto two separate companies - a casino operation and a hotel operation.

No specifics were laid out - in fact MGM Mirage already has a subsidiary called MGM Mirage Hospitality which they just started in 2007, MGM Hospitality is being operated to build resorts throughout the world utilizing the name and experience of MGM Mirage, so any ideas or things that I’m talking about are purely speculative, yet its something that seems highly probable and in the overall best interests of the company.

The reason for most companies splitting themselves up is usually due to unlocking hidden value, throughout high school I always read about this but never quite understood it. How could a company be less valuable as one vs two separate companies? Wouldn’t a company that has everything under one roof - multiple divisions doing multiple lines of business be more valuable than two or three companies that do the same thing? Well it does depend on the company and situation, but in this case these are two businesses (casino & hotel/entertainment/food and beverage) which are probably more valuable as separate companies.

But how would a split MGM Miragelook? That’s hard to say, since the hotels and casinos share the same building and services. I think one possibility would be the hotel company owning the real estate and running the hotel and food and beverage operations, with the casino company managing and owning the casino operation.

The more I think about MGM Mirage splitting the better the idea sounds - remember ITT-Sheraton prior to Starwood Hotels purchasing it? ITT-Sheraton was made up of Caesars World (the precursor to Caesars Casino in Atlantic City & Las Vegas, and now is owned by Harrahs), and at one time the Sheraton brand and the Caesars Casino operations were the same company (in fact, look at gold leaf around the Sheraton logo, it’s the same gold leaf design around the Caesars logo - even to this day.) After purchasing ITT-Sheraton, Starwood ended up selling the casino portion of the business - but kept the hotel portion (Sheraton) rather than keeping Caesars and expanding the casino business.

We’ll see what happens and how (and if) this idea of splitting MGM Mirageinto two separate businesses works out, but overall, I think its a great idea. It brings the real value of a great company front and center - the hotel/restaurant/entertainment divisions, while still enabling the casino division to grow and operate on its own.

andrew@alconic-inc.com