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They burned the Monte Carlo ... and may get away with it
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They burned the Monte Carlo ... and may get away with it
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By now it's old news that MGM Mirage took a paring knife to its personnel roster and gave 440 staffers the sack on Monday. Admittedly, saving $75 million seems like trimming a fingernail off a company whose 2007 profit was $1.58 billion (nor has the company acted as though in peril of dire penury).
Then again, MGM Mirage didn't do a Columbia Sussex and take it out on service-level employees, choosing instead to thin the ranks of middle management. And, truth be told, I've run across some bureaucracy there that might be fairly described as "bloated."
But MGM Mirage must have decided that Version 1.0 of its downsizing didn't play so well, especially with its target audience, Wall Street. A downward skid in MGM stock accelerated before stabilizing today.
Hence, President Jim Murren rolled out Version 2.0: No, it wasn't a reaction to the darkening economy (which at least Sen. John McCain is willing to call a recession, even if the occupant of the White House is boating on DeNile), contrary to what Alan Feldman had said previously. And the projected savings had risen overnight to $200 million.
OK, Murren's the numbers guy, so let's go with the larger figure. But what about this spin that the sudden exodus (abruptly announced to the affected employees mid-Monday) was the elimination of "redundancies" from MGM's takeover of Mandalay Resort Group?
Does it really take three years and "months of analysis" (at God only knows what cost) to identify a few hundred redundant employees (a seemingly disproportionate number of whom are in the Mississippi market)? Then again, if you're trying to make the case to your shareholders that you're running an less-than-optimally-efficient company, "streamlining" that moves with the speed of a Galapagos tortoise constitutes mighty convincing evidence, IMO.
(Steve Wynn is right on the money, I think, both in terms of the deleterious psychological effect and the failure to use subtler methods, like attrition.)
MGM is far from alone in this situation (even if its newly restated motives may be disingenuous) and -- given the alarming erosion of gaming stocks in the last six months -- perhaps we should heave a sigh of relief that the cuts haven't come sooner and in larger chunks. That's not much comfort if you're among the newly unemployed or contemplating the ripple effect on the local economy, but the industry is reacting with much greater circumspection than it showed in its panicky overreaction to the 9/11 crisis.
MGM Mirage will probably continue to be about as profitable as it is now. And if there's any villain in this scenario, it's those shareholders who whinge if their EPS is off by so much as a fraction of a penny (it does look as though MGM is going to miss its quarterly target) and devil take product quality. Fortunately, MGM is run by people for whom quality matters.
Speaking of Columbia Sussex, new Tropicana Entertainment President Scott Butera (no stranger to financially troubled companies, having served at Trump Entertainment Resorts and the Cosmopolitan), has been making the rounds and putting a friendlier face on his company's oft-truculent public posture. He places the best spin possible on the collapse of his company's Lake Tahoe lawsuit (in which Columbia Sussex at least eked out a three-year stay of execution, with hope of an eventual pardon).
He's also managed to gain a 25-day reprieve from Wilmington Trust Co., contingent upon various conditions which include essentially pledging the Las Vegas Tropicana as collateral. I'm not sure that 25 days counts as "significant" given the number of things which would have to happen in order for Wilmington Trust to be assured that its $960 million was safe.
The proceeds from the sales of the Horizon Vicksburg (above, $35 million), Casino Aztar ($220 million) and Atlantic City Tropicana (unknown) have already been pledged to other debtors, and the pace at which the latter two sales close is now up to regulators in Indiana and New Jersey. Columbia Sussex's cut of the A.C. Trop sale will have to come to $747 million to reach even the bottom of analyst Barbara Cappaert's $982 million-$1.34 billion aggregate price. It'd be a heck of a time for Butera to have to hang the "For Sale" sign on the LV Trop, but with Wilmington Trust breathing down his neck, he may have little choice.