Dubai World, the investment holding firm of the Dubai government, will acquire a 9.5 percent stake in MGM Mirage and 50 percent of the casino operator's CityCenter development project for $5 billion, a source familiar with the situation said on Wednesday.

Under the deal, which was first reported by the Wall Street Journal, Dubai World will pay $2.7 billion to acquire the stake in CityCenter, a $7.4 billion, 76-acre Las Vegas development of hotels, condos and retail outlets due to open in 2009.

The investment firm is also to buy 14 million shares from MGM Mirage at $84 each, or about $1.2 billion, a premium of about 13 percent over Tuesday's closing price of $74.32 on the New York Stock Exchange.

Dubai World also intends to buy an additional 14 million shares from public shareholders at about the same price.

MGM shares rose 11.7 percent to $83 in pre-market electronic trading on the news.

The stake purchase by Dubai World will likely quell takeover talk surrounding the second-largest casino company.

Kirk Kerkorian's investment firm Tracinda Corp, MGM's majority shareholder, in May said it planned to buy MGM's Bellagio and CityCenter projects and would explore alternatives for its 56 percent stake in MGM.

Kerkorian, however, backed off the plan in June after MGM agreed to develop a new multibillion-dollar resort on property it owns on the north end of the Las Vegas Strip. The project is to be financed by partner Kerzner International Holdings Ltd., which owns the mammoth Atlantic resort in the Bahamas.

Ahead of the Dubai deal, Kerkorian's moves had sparked an 18 percent rise in MGM's shares.

Dubai World will pay an additional $100 million if CityCenter opens on budget and by the end of 2009.

Dubai World's investment gives MGM Mirage a $3.9 billion cash infusion. And Kerkorian's stake in MGM Mirage will shrink slightly to 51.65 percent from 54.15 percent, the Journal said, but he will remain the majority shareholder through Tracinda.

Dubai World holds a multibillion-dollar portfolio that includes British ports operator P&O. Its private equity arm, Istithmar, last year bought a majority stake in the Mandarin Oriental New York, acquired retailer Loehmann's, the Knickerbocker Hotel in New York and office block 280 Park Avenue in April. - Reuters