July 28, 2004 - MGM Mirage's pending $7.9 billion buyout of Mandalay Resort Group hit its first snag Tuesday when the Federal Trade Commission officially requested more information from the two companies about the competitive consequences of their proposed merger.

Antitrust experts said the so-called "second request" suggests the federal investigation has reservations about the competitive issues raised by the merger first announced in June. The requirement to submit information when such a merger agreement is reached is considered the first request, they said.

"The issuance of a second request -- the first request was filing the application -- basically means the government is not comfortable with allowing the deal to proceed with the merger," said Steven Newborn, a partner in New York-based Weil Gotshal & Manges who was the former director of litigation at the Federal Trade Commission's Bureau of Competition.

For that reason, the federal antitrust agency has taken its investigation to a new phase that has to be considered a serious development for the proposal and is likely to delay consummating the buyout for up to 10 months.

"(The second request) indicates the investigation is in a second phase. In order to complete the transaction (as proposed), the companies will have to provide all the information requested and show the commission the transaction raises few or no competitive concerns," Mike Cowie, a former litigation counsel for the Federal Trade Commission, said.

Antitrust experts said although "second requests" are not public because they necessarily involve proprietary information, they include demands for information such as how the companies set prices.

Antitrust experts also said proposed $9.4 billion merger between Harrah's Entertainment and Caesars Entertainment announced this month will complicate and likely delay the MGM deal, and could get snagged in added enforcement actions itself because of the two deals being done at the same time.

Cowie, a partner in the Washington, D.C.-based Howrey Simon Arnold & White law firm, which specializes in antitrust and international law, said it is unclear how long the MGM Mirage-Mandalay investigation will take once the information is received, but that it is reasonable for it to last four months to 10 months.

MGM Mirage spokesman Alan Feldman said the second request "absolutely was expected right from the start."

He said the companies do not expect the investigation to have any effect on the merger.

"Although it's a wide ranging request for information, we will gather it all and submit it as quickly as we can," Feldman said, adding he did not know how long that compliance will take.

However, Newborn said it takes at least two months to compile the material and comply with what amounts to a paper subpoena, and it usually "a lot longer."

"Unless there's a settlement or the government gets comfortable with the transaction, it'll take at least three and probably more than three months to comply," he said.

Newborn said that although 95 percent of all proposed mergers get through, only half of the merger agreements with "second requests" get through without any enforcement action.

Enforcement actions can include an injunction against the merger or denial or permission to proceed with the buyout, a settlement or abandonment of the deal.

"Even though the other 50 percent get through, this has to be taken as a meaningful development," Newborn said.

He said the proposed $9.4 billion merger pending between Harrah's Entertainment and Caesars Entertainment adds concerns for the FTC about the original merger deal and complicates the approval process, especially where Las Vegas is concerned.

"The second deal guaranteed the second request for information, although how much the second one complicates the first deal is unclear," Newborn said. "The question is how the FTC will define the relevant market for measuring the impact on competition and pricing power in the gaming industry in each merger.

Cowie said there have been other cases in which the FTC has analyzed two major mergers in the same industry simultaneously and the agency has the institutional capacity to handle the issues.

However, Newborn said that the two together will raise added issues that will take time to investigation and could invite added enforcement action.

Harrah's spokesman David Strow could not be reached for comment.

Despite the expressed concern from the FTC, MGM Mirage still expects to complete the acquisition in the first quarter of 2005 as originally announced last month.

MGM Mirage closed Tuesday at $44.34, up 24 cents. Mandalay closed at $67.62, up 1 cent.

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