MGM Mirage Holds Firm on Offer

10 Jun 2004

by Rod Smith

NEW YORK -- Wall Street analysts and a source close to the talks said MGM Mirage is holding firm on its original $68 per share offer to buy Mandalay Resort Group during what were described as friendly, continuing negotiations Wednesday.

While Mandalay shares dropped throughout the day, Wall Street sources said the likely price being discussed was settling between $70 and $72 a share, far short of the $81 per share the sale was expected to bring when it was first announced late Friday.

Mandalay shares closed Wednesday at $68.58, down $1.12, or 1.6 percent, on 7.7 million shares, more than triple the normal trading volume. MGM Mirage closed at $47.52, down 47 cents, or 1 percent, on 1.4 million shares compared with normal trading volume of 1 million shares.

Meanwhile, the announcement of discussions was having a varied effect on some of the Las Vegas-based gaming companies' workers, with a number of rank-and-file employees saying they were excited by the prospects of the added business the takeover might mean for a merged MGM Mirage and Mandalay. Others expressed concerns about the likelihood of layoffs in backroom operations.

Most, however, said they doubt much will change if the deal to create the largest gaming company in the world is completed.

Analysts and the source said MGM Mirage is budging little from its original $7.65 billion unsolicited offer during the negotiations and has little incentive to increase its bid now since no other company has emerged as a possible bidder for Mandalay.

"At this point, given that there appears to be no other viable buyers, we see little reason to believe that the offer price moves much higher, (if at all)," Deutsche Bank analyst Marc Falcone said.

The source close to the talks said the situation is similar to MGM Grand's buyout of Mirage Resorts in many ways.

However, Falcone said there are two key differences between MGM Mirage's bid for Mirage Resorts in 1999 and its current run at Mandalay.

First, Harrah's Entertainment and Caesars Entertainment, then known as Park Place Entertainment, each expressed an interest in bidding on Mirage Resorts, whereas MGM Mirage is negotiating by itself in a noncompetitive situation for Mandalay, he said.

Also, the bid for Mirage Resorts was essentially "hostile," which means Mirage Resorts owner Steve Wynn was fighting the buyout, while the discussions with Mandalay have been friendly so far, Falcone said.

MGM Grand initially offered $17 for Mirage Resorts, raised it to $19 when Wynn rejected the first offer, and eventually agreed to a $21 price recommendation from Wynn's bankers.

A sell-side analyst who asked not to be named also noted Wednesday that management at Mandalay is in no position to fight the takeover attempt and is only trying to settle on the best financial terms possible for shareholders.

"Mandalay doesn't have a leg to stand on in terms of fighting the bid," the analyst said. "I don't think they'll see a price in the mid-$70s. If they try, MGM can just pull back and wait."

Analysts generally agreed that the differences between the two buyout offers mean a final price will probably be close to the original $68 offer.

However, they said although the final price is likely to be in the $70 range, Mandalay's management may negotiate a deal largely for stock, rather than cash as originally offered, because any sales price below $81 would be "accretive" and immediately add shareholder value.

Falcone said the course the negotiations seem to be taking is a win-win scenario for MGM Mirage shareholders.

"Clearly, we think the proposed transaction is an excellent deal for the company, being long-term believers in the Las Vegas market," he said.

Managers for institutional investors who have substantial holdings in Mandalay said the proposed merger will also be good for Mandalay shareholders, who should be enthusiastic about a final price above the $68 a share offer.

Some workers at MGM Mirage and Mandalay properties were nearly as enthusiastic about the possible sale as were investors.

One casino host at Bellagio, a longtime casino employee of MGM Mirage, for instance, said he was "jazzed" about the deal getting done.

"It'll mean more business in the casino from the (Mandalay) Convention Center and (the Mandalay Bay) Events Center. They're going to be high rollers, especially from the fights and concerts like Pavarotti, and more'll come over for restaurants and amenities," he said.

A registration clerk at Circus Circus, a Mandalay property, was also excited, noting the property "needs someone to buff it up. It does a great business, but we can make it do a lot more."

Others, such as one long-term midlevel manager at MGM Grand, expressed concerns the merger will mean substantial layoffs in back-office operations, including reservations and accounting.

"It's going to be like (the) Mirage (Resorts) merger. I worked at MGM Grand and it took years for us to get to where we are now. It's going to be tough on the people laid off, finding jobs, and it's going to be tough on a lot of the rest of us."

A back-office manager at Bellagio said she hopes there are no layoffs.

"But that usually happens," she said. "We'll see."

A waitress at Bellagio, however, said MGM Mirage takes care of its employees and they shouldn't have anything to worry about.

A valet at The Mirage was optimistic there might be room for improvement, adding: "My job got better after they got rid of Steve Wynn."

A valet at Mandalay Bay was more skeptical that the a deal would bring about any changes, at least at that property. "Naw, we just opened (The Hotel). No one's going to change any of this much. It's working too good."

But a bellman at Mandalay Bay probably summed it up best.

"You think MGM people are going to come without suitcases? All it means is money. It doesn't mean anything for people," he said.

None of the employees wanted their names to be used and some said they had been warned by supervisors not to talk with the media.

The proposed merger would create a gambling behemoth with annual revenues of nearly $7 billion that would control nearly half of the rooms on the Strip. The new company would control some of the most popular hotel-casinos on the Strip, including Bellagio, MGM Grand, Mandalay Bay and Luxor. The deal would also boost MGM Mirage's convention business by giving it the new Mandalay Bay Convention Center.

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	MGM Mirage Holds Firm on Offer 10 Jun 2004 by Rod Smith NEW YORK -- Wall Street analysts and a source close to the talks said MGM Mirage is holding firm on its original $68 per share offer to buy Mandalay Resort Group during what were described as friendly, continuing negotiations Wednesday. While Mandalay shares dropped throughout the day, Wall Street sources said the likely price being discussed was settling between $70 and $72 a share, far short of the $81 per share the sale was expected to bring when it was first announced late Friday. Mandalay shares closed Wednesday at $68.58, down $1.12, or 1.6 percent, on 7.7 million shares, more than triple the normal trading volume. MGM Mirage closed at $47.52, down 47 cents, or 1 percent, on 1.4 million shares compared with normal trading volume of 1 million shares. Meanwhile, the announcement of discussions was having a varied effect on some of the Las Vegas-based gaming companies' workers, with a number of rank-and-file employees saying they were excited by the prospects of the added business the takeover might mean for a merged MGM Mirage and Mandalay. Others expressed concerns about the likelihood of layoffs in backroom operations. Most, however, said they doubt much will change if the deal to create the largest gaming company in the world is completed. Analysts and the source said MGM Mirage is budging little from its original $7.65 billion unsolicited offer during the negotiations and has little incentive to increase its bid now since no other company has emerged as a possible bidder for Mandalay. "At this point, given that there appears to be no other viable buyers, we see little reason to believe that the offer price moves much higher, (if at all)," Deutsche Bank analyst Marc Falcone said. The source close to the talks said the situation is similar to MGM Grand's buyout of Mirage Resorts in many ways. However, Falcone said there are two key differences between MGM Mirage's bid for Mirage Resorts in 1999 and its current run at Mandalay. First, Harrah's Entertainment and Caesars Entertainment, then known as Park Place Entertainment, each expressed an interest in bidding on Mirage Resorts, whereas MGM Mirage is negotiating by itself in a noncompetitive situation for Mandalay, he said. Also, the bid for Mirage Resorts was essentially "hostile," which means Mirage Resorts owner Steve Wynn was fighting the buyout, while the discussions with Mandalay have been friendly so far, Falcone said. MGM Grand initially offered $17 for Mirage Resorts, raised it to $19 when Wynn rejected the first offer, and eventually agreed to a $21 price recommendation from Wynn's bankers. A sell-side analyst who asked not to be named also noted Wednesday that management at Mandalay is in no position to fight the takeover attempt and is only trying to settle on the best financial terms possible for shareholders. "Mandalay doesn't have a leg to stand on in terms of fighting the bid," the analyst said. "I don't think they'll see a price in the mid-$70s. If they try, MGM can just pull back and wait." Analysts generally agreed that the differences between the two buyout offers mean a final price will probably be close to the original $68 offer. However, they said although the final price is likely to be in the $70 range, Mandalay's management may negotiate a deal largely for stock, rather than cash as originally offered, because any sales price below $81 would be "accretive" and immediately add shareholder value. Falcone said the course the negotiations seem to be taking is a win-win scenario for MGM Mirage shareholders. "Clearly, we think the proposed transaction is an excellent deal for the company, being long-term believers in the Las Vegas market," he said. Managers for institutional investors who have substantial holdings in Mandalay said the proposed merger will also be good for Mandalay shareholders, who should be enthusiastic about a final price above the $68 a share offer. Some workers at MGM Mirage and Mandalay properties were nearly as enthusiastic about the possible sale as were investors. One casino host at Bellagio, a longtime casino employee of MGM Mirage, for instance, said he was "jazzed" about the deal getting done. "It'll mean more business in the casino from the (Mandalay) Convention Center and (the Mandalay Bay) Events Center. They're going to be high rollers, especially from the fights and concerts like Pavarotti, and more'll come over for restaurants and amenities," he said. A registration clerk at Circus Circus, a Mandalay property, was also excited, noting the property "needs someone to buff it up. It does a great business, but we can make it do a lot more." Others, such as one long-term midlevel manager at MGM Grand, expressed concerns the merger will mean substantial layoffs in back-office operations, including reservations and accounting. "It's going to be like (the) Mirage (Resorts) merger. I worked at MGM Grand and it took years for us to get to where we are now. It's going to be tough on the people laid off, finding jobs, and it's going to be tough on a lot of the rest of us." A back-office manager at Bellagio said she hopes there are no layoffs. "But that usually happens," she said. "We'll see." A waitress at Bellagio, however, said MGM Mirage takes care of its employees and they shouldn't have anything to worry about. A valet at The Mirage was optimistic there might be room for improvement, adding: "My job got better after they got rid of Steve Wynn." A valet at Mandalay Bay was more skeptical that the a deal would bring about any changes, at least at that property. "Naw, we just opened (The Hotel). No one's going to change any of this much. It's working too good." But a bellman at Mandalay Bay probably summed it up best. "You think MGM people are going to come without suitcases? All it means is money. It doesn't mean anything for people," he said. None of the employees wanted their names to be used and some said they had been warned by supervisors not to talk with the media. The proposed merger would create a gambling behemoth with annual revenues of nearly $7 billion that would control nearly half of the rooms on the Strip. The new company would control some of the most popular hotel-casinos on the Strip, including Bellagio, MGM Grand, Mandalay Bay and Luxor. The deal would also boost MGM Mirage's convention business by giving it the new Mandalay Bay Convention Center. Copyright GamingWire. All rights reserved.