MGM Resorts International is making a major play to buy the Sands Casino Resort Bethlehem from Las Vegas Sands Corp., according to two sources familiar with the negotiations.
If finalized, the sale would almost certainly have a more than $1 billion price tag that would transfer arguably Pennsylvania's most successful gambling hall from the world's largest casino company to the second-largest.
Like Sands Corp., MGM has casinos in international gambling meccas Las Vegas and Macau, China, but unlike Sands, it is also becoming a bigger player on the regional casino scene as it builds an East Coast portfolio that now includes casinos in New Jersey, Maryland and Massachusetts.
Sands Casino officials visited the Pennsylvania Gaming Control Board on Thursday to notify it that Sands was in negotiations with a buyer for the casino property, according to Gaming Board Commissioner Richard G. Jewell, who said he received an email about the talks Thursday. That came soon after Sands sent an email informing thousands of employees of the potential sale.
Two other sources, who were not authorized to discuss the negotiations, confirmed MGM as the interested buyer.
"The sale is not imminent, and there is a lot of work that still needs to be done before a sale is final," Sands Bethlehem CEO Mark Juliano said in the email.
Juliano would not discuss the talks and deflected questions to Las Vegas officials, who Friday also declined to comment on them.
"Las Vegas Sands is regularly approached about potential interest in various assets. The company has no announcement to make at this time," said Ron Reese, Las Vegas Sands spokesman. "As always, we thank our dedicated team members for their hard work and professionalism."
Asked to confirm MGM's interest in Sands, Mary Hynes, director of corporate communications for MGM Resorts International, said, "We have no comment on this or any other merger and acquisition activity."
Analysts say the sale makes a lot of sense for both companies. For MGM, it expands the company's footprint in a region where it has been growing fast. MGM National Harbor opened in Maryland last year, and the $950 million MGM Springfield is set to open next year in the latest state to approve casino gambling, Massachusetts. MGM also is a partner in the Borgata, Atlantic City's most lucrative casino.
MGM's outspoken CEO, James Murren, has expressed interest in building a $1.5 billion casino in New York City and has publicly criticized state regulators for delaying full casinos in the city until at least 2023. Buying Sands would give him the next closest casino to the city.
For Las Vegas Sands, selling would make sense because the Bethlehem casino is its smallest and its only regional property. It is not designed to be the kind of fly-in destinations Sands owns in Las Vegas, Macau and Singapore. Soon after Sands Bethlehem opened in 2009, CEO Sheldon Adelson expressed regrets, saying his company would go back to focusing on destination resorts. He would later reinvest in Sands, but the destination casino continues to be the Las Vegas Sands' model.
If Bethlehem is bought, it will not come cheap, said John Decree, senior analyst for Union Gaming Securities. The going rate for a casino such as Sands is roughly nine times the business's annual earnings before interest, tax, depreciation and amortization costs, he said. Sands' 2016 EBITDA was $136 million, according to its annual report, putting a value in the neighborhood of $1.2 billion.
"The sale of Sands seems to come up every six months, but this is a casino with a squeaky clean balance sheet that isn't going to sell to a low-ball offer," Decree said. "That casino will fetch north of $1 billion. And if they don't get their number, they probably won't let it go."
Adam Trivison, a research analyst for New York investment bank Gabelli & Co., said Sands for months has been on the short list of MGM Growth Properties, which was formed to conduct mergers and acquisitions and is mostly owned by MGM Resorts International.
"MGM uses these regional casinos to build relationships with players they can get into their Las Vegas casinos," Trivison said. "Sands fits that model perfectly."
The sales talks come at a time when Pennsylvania's gambling industry is going in a direction Sands officials have publicly condemned. State legislators in search of new gambling revenues to tax will start debating next week whether to legalize everything from online gambling to slot machines in airports to allowing gambling machines in bars. Adelson has aggressively opposed online gambling nationwide, and Sands officials have said Pennsylvania's expansion plans are short-sighted because they would keep people from visiting casinos that are now providing the state with more than $1 billion a year in taxes.
Las Vegas Sands has invested more than $800 million in converting the old Bethlehem Steel site, the most spent on any casino property in Pennsylvania. With about 2,500 employees in Bethlehem, Sands attracts 9 million visitors a year and is the only casino in the state to also have a 300-room hotel, an outlet mall and a concert venue.
Four months ago, Juliano told The Morning Call that Sands planned to invest an additional $90 million in an expansion that would add restaurants, slot machines and table games. Under the plan, Sands would create the largest gaming floor among the state's 12 casinos and expand a table games business that's already the most lucrative in the state and among the most lucrative outside of Las Vegas.
"It's kind of flattering that there's pretty big interest in that casino," said state Sen. Lisa Boscola, D-Northampton. "I don't think that's happening across the state."
Boscola, who said she, too, heard MGM identified as the potential buyer, said Sands has been good for Bethlehem and the rest of the Lehigh Valley but she understands why the company would sell.
"It's business," she said. "You make decisions based on what's good for the company."
Just last week, 146 Sands security guards in Bethlehem made history by becoming the first in a casino empire of 50,000 workers to ratify a union contract. Guards union consultant George Bonser said that all along, the guards were worried about what could happen if they were successful in their six-year battle to unionize.
In Las Vegas, Adelson is one of the only casino owners who has been able to keep the powerful culinary union out of his resorts, in part by paying his workers more than union workers. He spent eight years appealing a court ruling after unsuccessfully trying to keep culinary union workers from leafleting outside his flagship casino, the Venetian.
On Friday, Bonser said the guards probably should have seen a sale coming. During negotiations, he said, Sands officials refused to include a clause that would keep the contract intact if the casino was sold. So, a sale would void the contract.
"Sands was adamant that they would not agree to any succession clause," Bonser said. "I'm sure the guys are worried about the sale. It's all around the floor today."
News of a possible sale started swirling a few years after the casino opened in 2009. Sands acknowledged in 2013 that it would give up the property for the right price. And in 2014, Adelson tried to shop the casino to fellow billionaire Carl Icahn, owner of Tropicana Entertainment, sources said at the time.
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When the talks fell apart, he said in a written statement, "We are certainly proud of the financial success Sands Bethlehem has achieved, but we are also very proud of fulfilling the commitments we made to the people of the Lehigh Valley. Bringing pride back to a historic site many thought was lost for good is the real legacy of Sands Bethlehem, and that is the foundation on which we will continue to build."
Sands owns more than 120 acres of the former Bethlehem Steel site, including the blast furnaces, the No. 2 Machine Shop and the Steel General Office building. Bethlehem Mayor Robert Donchez has been pushing the Sands to continue with redevelopment as some of the non-gambling portions of the property's master plan have not been realized.
He said Friday he will continue that effort if MGM takes over.
A sale would mark the sixth time a Pennsylvania casino has changed hands. Harrah's Casino in Chester was sold in 2008 and Rivers Casino in Pittsburgh was sold before it opened in 2009. The Meadows Casino outside Pittsburgh changed hands in 2011 and again in 2016 and Presque Isle Casino in Erie was sold in 2014.
Gaming Control Board officials said a sale would trigger a several-month process in which the principals of the new company would be investigated by the board before they could assume Sands' gaming license. Transfering the license would cost the new owner $2.5 million.
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PROFILE
MGM Resorts International
•Global hospitality company, operates more than 20 casino resorts and has a 76 percent interest in operating partnership MGM Growth Properties, "a real estate investment trust engaged in acquisition, ownership and leasing" of entertainment and leisure resorts.
•Founded in 1987 as MGM Grand Inc. by billionaire by Kirk Kerkorian; became MGM Mirage in 2000 and MGM Resorts International in 2010.
•Headquartered in Las Vegas, where it owns or has economic interests in 14 properties, including ARIA, Bellagio and MGM Grand.
•Regional properties include Borgata Atlantic City, MGM National Harbor in Maryland; and MGM Springfield under construction in Massachusetts.
•International properties in Macau and Sanya, China
•Consolidated net revenues of $9.5 billion and domestic resort net revenues of $7.1 billion in 2016.
•Stock closed Friday at $26.46, up 15 cents.
Sources: MGM Resorts International website; New York Stock Exchange
MGM REGIONAL
MGM Resorts International operates five regional properties: Borgata Atlantic City, MGM National Harbor in Maryland, MGM Grand Detroit, and Gold Strike Tunica and Beau Rivage, both in Mississippi; MGM Springfield is under construction in Massachusetts.
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