MGM sweetens bid for Mandalay

By Chris Woodyard
USA Today

The Luxor and Mandalay Bay hotel-casinos on the Las Vegas Strip would become part of the MGM Mirage Inc. empire if Mandalay Resort Group accepts MGM's newly raised bid of $7.9 billion. Associated Press

Mandalay rebuffed MGM's initial offer Friday. But representatives of both companies continued to talk. The proposed deal that emerged yesterday would offer Mandalay shareholders $71 a share, $3 more than its initial offer on June 4. And MGM scuttled the provision that sank the deal last week: an option to bow out as long as 15 months after the deal if antitrust trouble arises.

If the Mandalay board accepts the sweetened offer it could create a company that controls about half the hotel rooms on the Las Vegas Strip.

Mandalay said in a statement the new offer provides "significantly greater assurances for closing."

With its latest offer, MGM would buy Mandalay for $4.8 billion and $600 million for convertible bonds. It would also assume $2.5 billion in debt.

In return, it would add swank on-Strip hotel casinos such as Mandalay Bay and Luxor to a portfolio that already includes Bellagio, MGM Grand and the Mirage.

The deal would be another boost to financier Kirk Kerkorian, 87, MGM's majority shareholder.

"It's a last hurrah. He goes out on top," says Rod Petrik, analyst for Legg Mason.

Petrik says that in the absence of other bidders, he sees no major barriers to approval by the company boards. Besides all the rooms it would pick up, MGM would gain valuable meeting space in the nation's most popular convention destination.

UBS analyst Robin Farley says the deal appears to work for both companies. Mandalay shareholders receive a premium on the stock. MGM shareholders pick up properties that can offset an anticipated decline in earnings next year when Steve Wynn's $2.5 billion, megaresort opens on the Strip on the site of the former Desert Inn.

But federal antitrust issues remain. Petrik says the combined company could be forced to sell one or more Las Vegas hotels, and maybe one of the two properties it would control in Detroit.

Ray Neidl, analyst for Blaylock & Partners, says he thinks the deal could run into antitrust concerns among Nevada gaming authorities as well.

Although legal casinos have spread throughout the country, "the Strip is still the center of the universe for gaming," Neidl says.

MGM noted that its latest offer represented a 30 percent premium to Mandalay's closing share price on June 3, the day before its initial offer was made.

Mandalay shares closed yesterday at $67.60, down 82 cents. MGM Mirage shares closed at $48.20, up 60 cents.