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MGM Mirage Offers to Buy Mandalay
 Resort Group for $7.65 billion
By Rod Smith, Las Vegas Review-Journal
Knight Ridder/Tribune Business News

Jun. 5, 2004 - In what would be a marriage of gaming industry titans, MGM Mirage announced late Friday that it has offered to buy Mandalay Resort Group for $7.65 billion.

"The combination of these two great companies would provide Mandalay shareholders with a premium price for their shares and provides several strategic benefits to shareholders in MGM Mirage," MGM Mirage Chairman Terry Lanni said in a prepared statement.

MGM Mirage is offering to pay $68 per share in a cash transaction that would include the assumption of about $2.8 billion in debt. The offer was announced the day after Mandalay Resorts reported record quarterly earnings, with net income jumping more than 80 percent to $87 million.

Although the proposed merger was announced after the markets closed Friday, both companies' shares ended the day higher.

Mandalay Resort Group closed at $60.27, up $5.65 or 10.3 percent, on 6.4 million shares traded, four times the normal trading volume. MGM Mirage closed at $46.03, up $1.50 or 3.4 percent, on 1.4 million shares traded, double the normal trading volume.

In a statement late Friday evening, Mandalay said it received and will carefully evaluate the proposal from MGM Mirage and will respond in due course. The statement also said the company does not intend to make any further comment on the matter until it is resolved.

One analyst, however, explained the impact the deal could have on the gaming industry.

"The deal, if it's done, is going to create the biggest gaming company in the world. It increases MGM's presence on the Strip tremendously," said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm.

MGM Mirage is expected to have more than $4 billion in revenue this year and Mandalay Resort Group is expected to have more than $2.6 billion in revenue.

After the merger, the combined company would operate more than half of the approximately 72,000 hotel rooms on the Strip.

On the Strip, Mandalay Resort Group operates almost 21,000 rooms at Mandalay Bay Resort, The Hotel, Luxor, Excalibur, Circus-Circus, Monte Carlo and the Four Seasons at Mandalay Bay.

MGM Mirage operates almost 17,000 rooms at the Bellagio, MGM Grand, The Mirage, Treasure Island, New York-New York and the Boardwalk Hotel.

More than just the number of rooms, however, Gordon said the buyout would add a new dimension to MGM Mirage's business by giving it a major convention center, something MGM Mirage has been lacking.

An industry insider said Mandalay has been on MGM Mirage's radar for a year, but discussions became more serious over the last three months. Talks have been under way for the past few days, another source said.

MGM Mirage really likes the licenses Mandalay Bay has in other jurisdictions, and it likes the arena at Mandalay Bay in Las Vegas as well as the added convention space the deal would bring, the insider said.

MGM Mirage owns casino resorts in Laughlin and Primm in Nevada as well as properties in Biloxi, Miss., and Detroit. It also owns the Borgata in Atlantic City in a joint venture with Boyd Gaming Corp.

Mandalay Resort Group owns properties in Reno, Laughlin, Jean and Henderson in Nevada, as well as the Gold Strike in Tunica, Miss. It partially owns a riverboat in Elgin, Ill., and MotorCity Casino in Detroit.

Deutsche Bank analyst Marc Falcone pointed out that one of the companies probably would have to divest its Detroit asset for the deal to work.

The insider pointed out that convention groups prefer MGM Grand to Mandalay or The Venetian, but MGM Mirage properties simply don't have adequate space for convention groups with 8,000 or more attendees.

Mandalay Resort Group has expanded into the convention business with the opening last year of the Mandalay Convention Center, the fifth largest convention facility in the country with 1 million square feet of exhibit space.

Just as Mandalay Bay often drives up the cost of concert venues by sparking a bidding war between it and MGM Grand, the insider said, the same thing happens occasionally with convention groups.

"(Therefore,) if you can afford it, why not just buy your competition?" the insider wondered.

Ultimately, the insider said, MGM Mirage is likely to keep Mandalay Bay and perhaps the Luxor. The company probably would try to sell poor-performing properties such as Circus Circus in a package deal to some new company looking to get into the industry, similar to the transaction in which it sold the Golden Nugget downtown and the Golden Nugget Laughlin.

Conceivably, the insider speculated that MGM Mirage could decide to implode the Excalibur so a third MGM Mirage property could be built at Tropicana Avenue and Las Vegas Boulevard.

Another industry insider who asked not to be named said the buyout makes sense because the two companies have very different profiles and offer each other tremendous synergies.

"Mandalay goes from bargain properties to mid-level at Mandalay Bay. MGM goes from there to the top. The buyout creates a diverse company across the spectrum," he said.

"Mandalay Bay stands alone at the base of the Strip, but it offers great cross-marketing opportunities with MGM Mirage. Convention planners will be able to put together great convention space with any quality and size of amenities they want to enjoy in Las Vegas," the source said.

Deutsche Bank's Falcone said the proposed purchase by MGM Mirage will take Wall Street very much by surprise.

"You're talking about the two largest players on the Las Vegas Strip. Wall Street would never have anticipated such a proposal, given that both companies generate 75 percent of their revenues from the Strip," he said.

Falcone and Gordon both said their biggest concerns are the regulatory approvals in Nevada and other jurisdictions where the companies operate that will be necessary to close the deal.

Gaming Control Board Chairman Dennis Neilander said he was aware of the negotiations but could not comment on the proposed deal until it comes before his agency for licensing approvals.

He said the proposed buyout will require approval under Regulation 3070 for multiple licensing procedures.

"That takes into account market concentration. That's one of the factors we will have to consider," Neilander said.

The Control Board will have to review the number of slots at the combined operation, the number of table games and the number of hotel rooms, rather than any specific percentage figure for rooms or revenues, he said.

"The regulations do not specify a percent threshold. We will have to look at whether the deal would have a monopolistic effect," Neilander said.

Executives contacted at other casino operators, however, said they expect the antitrust considerations to be a major obstacle to the deal.

"I can't imagine, given the concentrations both of these companies have in Nevada, how this deal could be approved by Nevada regulators," an industry source said on condition of anonymity.

"One, it would give overwhelming market power to a gaming company in Nevada and, two, the pricing is very large for a company that has one stellar asset and a number of lesser assets, including some that are rather unimpressive."

However, D. Taylor, secretary-treasurer of Culinary Local 226 in Las Vegas, said lawyers from both sides probably have looked at the antitrust implications of a merger of this proportion.

"It would just confirm the further consolidation of the gaming industry," Taylor said. "I view the merger as further maturing of the industry."

The Culinary represents a combined 20,000 to 23,000 employees between the properties of MGM Mirage and Mandalay Resorts. Taylor said he doesn't think the merger would have much of an effect on them.

Sen. Harry Reid, D-Nev., and a past chairman of the state Gaming Commission, seemed to agree.

"Both of these companies have been ideal corporate citizens in Nevada," said Reid, who added that he considered the proposed purchase of Mandalay Resort to be a "business decision, not a political decision.

"I certainly don't see it as a sign of weaknesses," he said. "You have two powerhouses, and of course Kirk Kerkorian and Mike Ensign are some of the best in the business, and Terry Lanni's no slouch."

Employees at Mandalay Bay, meanwhile, greeted news of the proposed buyout with indifference.

"Either way, I think it would be fine," said a bartender who learned of the bid early Friday.

"I'm happy now, and I've heard Treasure Island and The Mirage are doing OK. I don't think it would make much difference."

A cocktail waitress at Mandalay Bay said that as long as the benefits stay the same, she'd be OK with it.

"I heard that's what happened when they bought the Bellagio."

But the story was a little different at Circus-Circus.

A longtime bartender said he would welcome a change in ownership. "I think they'd run a tighter ship," he said of MGM Mirage. "Look at the earnings (Mandalay Resorts reported Thursday). Everywhere did well for Mandalay but Circus-Circus. This place helped pay for the Excalibur, and now it's a little overbloated," the bartender said.

The companies, however, have not yet officially told employees about the proposed buyout.

A longtime Luxor employee who asked not to be identified said late Friday that she was shocked by MGM Mirage's plan. She said her co-workers were unaware of the sale offer Friday and expressed concern that mid-level management employees could be forced out if the merger was successful.

"You would think the directors might want to put their own people in those jobs," she said.

Spokesmen for competing firms generally declined to comment.

However, Gary Thompson, spokesman for Harrah's Entertainment, said it's hard for him to believe MGM Mirage would make an offer for Mandalay Resort, especially given Mandalay's current stock price of more than $60 a share.

"You're kidding," he responded when told about the announcement. "It's a big deal. But consolidation is something that occurs in a lot of industries, and gaming is no exception. It's one way to continue growth when you don't have new jurisdictions opening in new areas."

Review-Journal writers Chris Jones, Hubble Smith and Erin Neff contributed to this report.


Chairman/CEO: Terri Lanni

President/CFO: Jim Murren

Southern Nevada properties: MGM Grand, Bellagio, The Mirage, Treasure Island, Monte Carlo*, New York-New York, Boardwalk, Primm Valley Resorts

Total number of rooms on the Strip: 16,647**

Other properties not included in Las Vegas room count: Beau Rivage, Biloxi, Miss., MGM Grand Detroit Casino, Detroit, The MGM Grand Darwin, Darwin, Australia

Closing stock price on Friday: $46.03

Closing percent change: 3.37 percent

Approximate number of employees: 45,000

*The Monte Carlo is a partnership between MGM Mirage and Mandalay Resort Group.

**949-room expansion scheduled to open in December at Bellagio.


CEO/COO: Michael S. Ensign

President: Glenn Schaeffer

Southern Nevada properties: Mandalay Bay Resort & Casino, Luxor Hotel & Casino, Excalibur Hotel & Casino, Circus Circus Hotel, Casino & Theme Park, Colorado Belle, Edgewater, Gold Strike, Four Seasons Hotel Las Vegas, Nevada Landing, Railroad Pass Hotel & Casino, Slots-A-Fun

Total number of rooms on the Strip: 20,055

Other properties not included in Las Vegas room count: Circus Circus, Reno, Silver Legacy, Reno, Gold Strike Resort, Tunica, Miss., Grand Victoria, Elgin, Ill., Motor City Casino, Detroit

Closing stock price on Friday: $60.27

Closing percent change: 10.34 percent

Approximate number of employees: 34,500

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