Mandalay Rejects MGM Mirage's $4.85 Billion Bid

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Mandalay Resort Group rejected MGM Mirage Inc.'s $4.85 billion cash buyout offer that would have created the largest casino company in the world, saying Friday that the $68 per share bid was insufficient.

"The terms of the MGM Mirage proposal asked Mandalay shareholders to bear a far disproportionate share of the risk. It is not in the best interest of Mandalay shareholders," said Glenn Schaeffer, president and chief financial officer of Mandalay Resort Group.

A week of intense negotiations stalled Thursday when MGM Mirage declined to raise its offer, but a source close the negotiations said the "deal killer" was an early morning e-mail sent Friday to Mandalay from MGM Mirage, stating the latter company wanted a 15-month option to pull out of the deal.

During that time, Mandalay would be prevented from making any financial or strategic moves, the source said. MGM Mirage would have reportedly paid a $100 million breakup fee if the deal didn't close in 15 months.

Mandalay's board met and voted against the proposal early Friday. The company was also concerned because of regulatory issues that could force the possible selling off of casino properties, which would effect the economics of the deal.

"They were not willing to accept the risk that regulators might require divestitures," said Schaeffer, Mandalay's president. "We've been crystal-clear from the outset of any formal discussions that points of regulatory risk were theirs, not ours."

A spokesman with MGM Mirage could not immediately be reached for comment.

MGM Mirage, whose properties include MGM Grand and Bellagio, surprised the market by going public with the offer June 4 amid friendly, but unsolicited negotiations.

Investors sent Mandalay shares surging, in anticipation of a better offer, from MGM Mirage or another bidder, but neither surfaced. Mandalay owns and operates 11 casinos in Nevada, including Luxor and Circus Circus.

The blockbuster combination would have given MGM Mirage control of 10 properties on the famous Las Vegas Strip, owning about half the 73,000 hotel rooms of the world's premier gambling market. The company would surpass rivals Harrah's Entertainment and Caesars Entertainment, with more than $6 billion in revenues.

Experts had questioned the considerable influence MGM Mirage would have wielded under the deal.

"Too much pricing power puts consumers at significant disadvantage and MGM Mirage could intimidate smaller competitors," said Bill Eadington, an economics professor who directs the Institute for the Study of Gaming at the University of Nevada, Reno.

Marc Falcone, a Deutsche Bank gambling analyst in New York, said the last-minute MGM Mirage request for a 15-month option would have prevented Mandalay from building a property or merging with another casino. Falcone said the regulatory issues were also a concern.

"Wall Street completely discounted any potential regulatory risk," Falcone said. "But it was by no means a certainty that the regulators would or would not require any asset sales on the basis of concentration issues in Las Vegas."

In rejecting the offer, Schaeffer said, "Mandalay's earnings power is on a decided upswing, represented by a string of record quarterly results. Our track record for expansion, innovation and strong profit margins speaks well for our strong future."

Last week, Mandalay reported that first quarter earnings almost doubled to $87.3 million, as revenues rose 18 percent, surpassing analysts expectations.

Analysts speculated that the bidding for Mandalay could reach as high as $80 per share. But once it was disclosed that the $68 per share offer came at the end of friendly, but unsolicited negotiations, analysts revised and sharply lowered their estimates.

Mandalay' stock traded at $68.42 Thursday, slightly above MGM's offering price and off a recent high of $70.23 hit Monday. MGM Mirage's stock closed at $47.60 Thursday on the New York Stock Exchange. U.S. markets were closed Friday in observance of the national day of mourning for President Reagan.

MGM Mirage owns or operates 12 casinos in Nevada, New Jersey, Mississippi, Michigan and Australia, and has investments in two other resorts in Nevada and New Jersey. It has a 25 percent interest in British casino developer Metro Casinos Ltd.

Mandalay Resort Group has about 15,000 rooms on the Strip. It has ownership in other properties in Nevada, Illinois and Michigan, and owns a hotel-casino in Tunica County, Miss.


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