MGM-Mandalay close to fruition

Jun 15, 2004 6:12 AM

Two things have characterized Kirk Kerkorian’s approach to mergers and acquisitions during his business career: He doesn’t like to overpay for a property and bigger is better.

Case in point was the $6 billion-plus purchase of Mirage Resorts from Steve Wynn and his fellow investors. Initially, Kerkorian, majority owner of the publicly-traded MGM MIRAGE Inc. (MGG), offered to acquire the company for $18 per share, a bid that Wynn rejected. Subsequently, the 87-year-old multi-billionaire increased the offer to $21 a share. The extra three dollars was enough to swing the deal.

So, it was no surprise over the weekend when Kerkorian increased his initial offer for Mandalay Resort Group (MBG) from $68 to $71 a share, a deal sweetener that apparently pleased the Mandalay leadership who announced that the proposal would be taken up by the company’s board of directors on Tuesday (June 15). The MGM MIRAGE directors will be meeting on that day as well.

How big is the offer from MGM MIRAGE? Combining the per-share cash and the company’s outstanding debt, the acquisition will total $7.9 billion, including $2.5 billion in Mandalay Resort debt. But, it will create MGM MIRAGE/Mandalay Resort the largest gaming company in the world.

Before anything happens, the merger must be approved by the Federal Trade Commission as well as the gaming regulators in the states in which the companies are currently doing business. In Michigan, for instance, regulators have indicated they will watch things closely since Mandalay Resorts own a 53 percent interest in MotorCity Casino while MGM MIRAGE operates a competing property.

But the scope of the project typifies the kinds of deals that Kerkorian has enjoyed making over the years. Consider that he built the International Hotel and Casino in Las Vegas (later sold to Hilton Hotels), the original MGM Grand (now Bally’s Las Vegas), and in the early 1990s the MGM Grand at 5005 rooms, making it the largest hotel/casino in the world. And his gaming moves have complemented his other activities in the movie business, airlines and the auto industry.

Late last week, there was some concern that the deal was ill-fated when Mandalay Resorts rejected the proposal because of concerns that MGM MIRAGE would have 15 months to close the deal but could back out if they found the requirements of some gaming jurisdictions to sell off properties to be unacceptable. That, plus the initial offer lacking the sweetener, appeared to sour the deal.

The weekend’s negotiations spiced up the deal.

Still, investors appeared to be cautious as they permitted the price per share of Mandalay Resorts Group to fall by $0.82 on Monday, closing at $67.60 per share while MGM MIRAGE finished the day at $48.09, up $0.49 per share.

If the merger is consummated, MGM MIRAGE will control about half the 73,000 rooms on the Las Strip Strip while operating 29 casinos nationally. Needless to say, the result would be the world’s largest gaming operator.