MGM Mirage's Board Approves $4.8 Billion Cash Offer

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MGM Mirage Inc.'s board on Tuesday approved a $4.8 billion cash offer for it to buy Mandalay Resort Group in a deal that would create the industry's dominant casino operator.

MGM Mirage's offer is contingent upon it being accepted by Mandalay, according to a source familiar with the lengthy closed-door MGM Mirage board meeting.

Mandalay's board also was considering the buyout offer in a meeting that was expected to run well into the night Tuesday.

The deal would pay Mandalay $71 per share. The agreement also includes the assumption of $2.5 billion in Mandalay debt and $600 million in bonds that can be exchanged for stock in the company.

MGM Mirage Inc. has said the cash price represents a 30 percent premium to Mandalay's closing share price on June 3, the day before MGM Mirage's initial offer of $68 per share was disclosed.

The two Las Vegas-based companies have been in friendly but intense negotiations that unraveled Friday after MGM Mirage requested a 15-month option to pull out of the deal while retaining strategic control over Mandalay during the time period.

The companies regrouped over the weekend and salvaged the deal that will establish the largest casino company in the world and dominate the Las Vegas Strip with 11 properties.

Any such transaction would take months to complete. The deal must be reviewed by the Federal Trade Commission and gambling regulators in states in which the companies own casinos.

The deal would create a company with more than $6 billion a year in revenues and 28 casinos in Nevada, Mississippi, Michigan and Illinois. MGM Mirage also is a 50-percent owner of the Borgata hotel-casino in Atlantic City.

It would be the biggest merger between gambling companies ever, surpassing Kirk Kerkorian's $4.4 billion buyout of Steve Wynn's Mirage Resorts in 2000.

With the merger, the 87-year-old Kerkorian, MGM Mirage's majority shareholder, would become the top gambling mogul in Las Vegas.

"I think if he was a hands-on owner it would mean a lot, but in the past he has shown a willingness to pick good executives and let them run his casinos. I don't think we would see that much change," said David Schwartz, who directs the Gaming Studies Research Center at University of Nevada, Las Vegas.

Mandalay hotel-casinos most likely will retain their identities, Schwartz said.

"I don't think you will see the properties assimilated," he said. "They wouldn't be a monolithic model. They are buying Mandalay because it's a successful company and they are going to want to keep it successful."

The combined companies would control about half of the 72,000 hotel rooms on the Strip. UBS Warburg analyst Robin Farley said MGM Mirage would own about 64 percent of the Strip's high-end room market.

It also would have about 40 percent of the slot machines and 44 percent of the gambling tables on the Strip.

Antitrust experts say those kind of numbers will compel regulators to vet the deal.

MGM Mirage would be required by Michigan law to sell either the MGM Grand Detroit Casino or Mandalay's MotorCity Casino in Detroit. Detroit's three licensed casinos must be separately owned, according to the law.

Shares of MGM Mirage rose $1.30 cents to close at $49.50 while Mandalay shares were up 28 cents to end at $67.88 on Tuesday on the New York Stock Exchange.


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