Thursday, September 13, 2007

Manna for MPEL?

Melco PBL Entertainment (MPEL 14.91) was up over a buck today, on news between the headlines, as gambling companies keep their cards and news close to the vest. Late yesterday, Harrah's trumpeted the purchase of their "seventh" golf course-100 acres in Macau next to Sheldon Adelson's Venetian Macau, and next to the property owned and that will be managed by MPEL. The cost of the golf course? Rumored to be around $2-3 billion.

Harrah's, which owns Caesars, does not have one of the six gambling licenses or subconcessions in Macau. MPEL does. Harrah's eventually could build a casino, and MPEL could "manage" it and get a nice chunk of money without putting a penny up. The building of a casino by Harrah's would also greatly increase the value of MPEL's property.

MPEL also has an option on $250 million of land on the Macau peninsula, next to the gambling ferries. In two monthss, the ferries will be running again, and the value of that will be up appreciably. MPEL just raised $1.75 billion to finish their "City of Dreams" and $245 million last month to buy back their stock with Packer's casinos guaranteeing the debt. Last month the stock was as low as 10. It's moved 50% since then. It looks like the billionaire backers of MPEL, Lawrence Ho and James Packer knew more than the myopic shorts of Wall Street.

Now all of this is speculation regarding MPEL, but does anybody believe that Harrah's bought this golf course without having a way in the casino business? Harrah's is being taken over by private equity, and they are restructuring the casino and land business separately. That way they can borrow money against the land to pay for the takeover, and highlight the value that accounting hides-the depreciation of the land that goes up in value. Casino companies see what others do not. To create value for the long term, you have to invest in the growth areas now. And there's no better place to have a casino than Macau.

MPEL paid $900 million for their subconsession gambling license. What would that cost now? $1.5 billion? That's a starting figure for what this deal could be worth to MPEL

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