June 20 (Bloomberg) -- Billionaire investor Kirk Kerkorian abandoned efforts to buy two of MGM Mirage's Las Vegas casino complexes after the company disclosed plans to build another resort in the city. MGM shares dropped the most in 10 months.

The moves damped speculation that MGM, the world's second- largest casino company, may be for sale. The possibility of a buyout had driven the stock price up 37 percent since May 21, when Kerkorian, 90, said he may try to buy the Bellagio Hotel & Casino and CityCenter, a hotel, condo and casino project.

Kerkorian's Tracinda Corp., the owner of a 56 percent stake in MGM Mirage, said today it will ``continue to monitor'' its investment, which dates back to 1986 when he founded MGM Grand. The statement came after MGM said it would join with Kerzner International Holdings Ltd. to build the new casino.

``An outright sale of MGM in the near term is now off the table,'' Harry Curtis, an analyst with JP Morgan Securities Inc., said today in a note.

MGM shares fell $5.90, or 6.8 percent, to $80.60 at 4 p.m. in New York Stock Exchange composite trading, the biggest decline since August 2006.

MGM and closely held Kerzner said they will build the new casino on 40 acres of a 78-acre plot owned by MGM. Kerzner will lead the planning and provide cash for the project. Each company will have an equal stake in the casino, they said.

The companies plan to reach a final agreement in the third quarter. They said planning and design will take 1 year, and construction will last about 3 years.

Real Estate

``They're going to be looking for ways to unleash these huge real estate assets they're sitting on without actually selling,'' said James Hardiman, an analyst with FTN Midwest Securities Corp. ``I think you'll see more deals like this with MGM giving up stakes in a property to free up value.''

MGM Mirage's land for the resort is valued at $20 million an acre, totaling $800 million. The companies said they may create a new brand for the property, on the corner of Las Vegas Boulevard and Sahara Avenue.

The new resort may cost $4 billion, based on development costs and land values of other recent projects on the Strip, CIBC analyst David Katz wrote in a note today.

MGM dissolved a board committee formed to consider any Kerkorian proposals. The company said it received ``overwhelming interest'' from other parties after Kerkorian's May announcement.

The casino company hired UBS AG to advise on a possible breakup of the company after Kerkorian said he may be interested in buying the two properties.

Possible Buyout

At the time, analysts also said that buyout firms may be interested in taking over MGM, attracted to the company's real estate and cash flow. Casino companies such as Aztar Corp., Station Casinos Inc. and Kerzner have been taken private in the past 18 months. In December, Apollo Management and TPG Inc. agreed to purchase Harrah's Entertainment Inc., the world's largest casino company, for $17.1 billion.

Kerkorian, the son of an Armenian immigrant rancher in California's San Joaquin Valley, was an investor in the Metro- Goldwyn-Mayer Inc. movie studio in the 1970s. He used the MGM Grand name for a group of hotels he sold to Bally Entertainment Corp. in 1986.

The same year, he founded MGM Grand Inc., taking it public in 1987, and opened the MGM Grand, Las Vegas's largest casino in 1993. The company later acquired Steve Wynn's Mirage Resorts Inc. in 2000 for $6.4 billion and Mandalay Resort Group in 2005.

Bonds, Options Debt

MGM owns Mandalay Bay, Treasure Island and other casinos including Circus Circus on the north end of the Las Vegas Strip near the site of the new resort. Kerzner International owns the Atlantis resort in its hometown of Paradise Island, Bahamas, and it is building another Atlantis in Dubai.

MGM's 7.625 percent note due in 2017 rose 1.2 cents to 97.8 cents on the dollar today, yielding 8 percent, according to Trace, the NASD's bond-price reporting service.

Options on MGM were among the most active U.S. equity derivatives. Prices of July $75 puts tripled to 95 cents. Total put volume rose sixfold to 21,642.

The perceived risk of owning MGM's bonds fell today, according to traders who bet on the creditworthiness of companies in the credit-default swap market.

Credit-default swaps based on $10 million of its bonds dropped $18,600 to $186,700, according to composite prices from CMA Datavision in London. A decrease in the five-year contracts, used to speculate on the company's ability to repay its debt, indicates improvement in the perception of credit quality.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

Last Updated: June 20, 2007 16:08 EDT