16 June 2004
Mandalay Resort Group Approves Buyout By MGM Mirage
Posted by Zane under: News .
The board of casino operator Mandalay Resort Group agreed late Tuesday to a $4.8 billion takeover offer from MGM Mirage that would form the largest casino company in the world. ”We have a deal,” Mandalay President and Chief Financial Officer Glenn Schaeffer told Reuters after a seven-hour meeting of the company’s board, which he said unanimously approved the sale.The deal, which is still subject to approval by Mandalay shareholders, is expected to close by the end of the first quarter of 2005, another person close to the deal said.
Schaeffer said his role and that of other Mandalay executives in the combined company has not been set.
The deal would catapult MGM to the top spot in the gambling world and a dominant role in Las Vegas, where it would own a third of the casinos on the Las Vegas Strip of mega-resorts and about half the hotel rooms.
MGM does not plan to divest any properties in Las Vegas or nationally apart from one in Michigan, which is required by local regulations, the source familiar with the situation said.
The deal comes less than two weeks after Mandalay stunned Wall Street with quarterly results that showed tourists were still flocking to Las Vegas after more than a year of strong improvement.
Shares in both companies rose Tuesday in anticipation of a takeover, which MGM has said would immediately boost profits. But Mandalay shares have not yet hit the proposed takeover price due to fears that the deal might not be approved by the Mandalay board or anti-trust regulators, analysts say.
MGM offered to buy its rival for $71 per share in cash, or $4.8 billion, plus the assumption of $2.5 billion in debt and $600 million in convertible debt.
MGM originally offered $68 per share on June 4 and Mandalay rejected the offer once, saying MGM wanted an escape clause to exit the deal in 15 months for a $100 million fee if regulators blocked the takeover.
MGM dropped that condition and raised its price over the weekend, letting management of the companies agree on the main points of a deal, it said.
Shares in Mandalay (MBG: Research, Estimates) edged up 28 cents to $67.88 and MGM Mirage (MGG: Research, Estimates) rose $1.30 to $49.50 on the New York Stock Exchange in anticipation of a deal.
Many analysts now expect MGM may be right in thinking the deal will win approval from authorities. Banc of America Securities’ J. Cogan said that properties near the Strip, such as the Hard Rock, still compete.
The California tribal casino market rivals Las Vegas in total size, giving MGM a strong position to argue before regulators that it would not dominate the gambling market, he said.
The deal would also give MGM, which caters more to high-end gamblers, a stronger foothold in the market for business people, since Mandalay last year opened the largest privately owned convention center in the world and a new hotel that has stayed full mid-week with conventioneers.
If state or federal regulators do force some Las Vegas sales, Caesars Entertainment Inc. and Harrah’s Entertainment Inc., the current No. 1 and No. 2 casino companies by revenue, topped the list of potential buyers.
MGM is the third biggest player and Mandalay is the fourth.
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