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Howard Stutz

MGM Mirage selling two Laughlin casinos

17 October 2006

LAUGHLIN, Nevada -- MGM Mirage struck a deal to unload its two Laughlin casinos Monday to a group headed by the son of casino building pioneer Tony Marnell.

The side-by-side Colorado Belle and Edgewater, which MGM Mirage acquired as part of its $7.9 billion buyout of the Mandalay Resort Group 17 months ago, were sold for $200 million to a partnership that includes Anthony Marnell III and Sher Gaming.

The deal marks the younger Marnell's most significant move yet as a casino operator. In June, a Marnell-Sher partnership bought the Saddle West casino in Pahrump. Last year, Marnell announced plans to build M Resort, a $1.8 billion hotel, casino and commercial center, on 79 acres in Henderson.

Marnell's father's construction firm, Marnell Corrao Associates, built Wynn Las Vegas and Bellagio. Tony Marnell also built and operated the Rio before selling it to Harrah's in 1999.

"Through the leadership of Anthony Marnell, the Marnell family has made a commitment to get back into the gaming businesses," said Greg Wells, president of Austi LLC, which oversees the Marnell family's business interests. "This purchase was the next step in that commitment."

The transaction with MGM Mirage, which is subject to approval by Nevada gaming regulators, is not expected to close until next summer.

Combined, the Colorado Belle and Edgewater contain 2,535 hotel rooms and 138,000 square feet of casino space, housing 2,224 slot machines and 72 gaming tables. The two casinos, which were built by Mandalay Resort Group predecessor Circus Circus Enterprises in the mid-1980s, encompass 57 acres along the Colorado River.

MGM Mirage spokesman Gordon Absher said the casinos employ 2,200 workers, about 28 percent of whom have been with the properties more than 10 years.

In a statement, MGM Mirage said it expects to report "a substantial gain" from the transaction. Absher said the Marnell group approached MGM Mirage with the offer.

"The Laughlin properties were great assets in the short time that MGM Mirage owned them," Absher said. "The unsolicited offer was both fair and compelling and allows MGM Mirage to reinvest in other areas that allow for a higher return."

MGM Mirage has several construction projects in the various development phases, such as the $7 billion Project CityCenter, the $875 million MGM Grand Macau in China and a permanent casino for the MGM Grand Detroit, which will cost $765 million to build.

"Considering everything MGM Mirage has under way domestically and internationally, this (transaction) allows us to concentrate on much larger projects," Absher said.

Wells said the Marnell family's return to gaming is currently focused on "satellite" markets to Las Vegas. From 2002 to 2004, the Marnell team now operating the Saddle West operated the Valley View Casino in San Diego for the San Pasqual Band of Mission Indians.

He said Anthony Marnell III approached MGM Mirage President Jim Murren with the idea of buying the two casinos.

"We've looked at the Laughlin market and it has shown resiliency over the last 10 years," Wells said. "It's handled the pressure placed on it by the Native American casinos (in Southern California). These two assets have performed well and we see them as a tremendous opportunity to move the commitment to gaming forward."

Wells said he expects the Marnell-Sher management group will have to spend some money to modernize and refurbish portions of the two casinos but full development plans have not been fully laid out.

Banc of America Securities has acted as the financial adviser to the Marnell group but Wells said financing is still to be determined.

Once the transaction is approved, the Colorado Belle and Edgewater will mark the fifth and sixth casinos in the Laughlin market of nine properties to change ownership in the past 24 months.

In separate deals, Columbia Sussex Corp. picked up the River Palms in 2004 and is expected to close next month on its purchase of the Ramada Express as part of the Aztar Corp. buyout.

Landry's Restaurants bought the Golden Nugget Laughlin last year as part of a deal when the restaurant operator purchased the downtown Golden Nugget from Poster Financial Group.

Earlier this year, American Real Estate Partners, which owns the Stratosphere and Arizona Charlie's casinos, bought the Flamingo Laughlin for $170 million and said it would rename the property Aquarius.

Gaming analysts were not surprised MGM Mirage cut loose its Laughlin casinos.

"While not a large transaction this allows MGM Mirage to monetize some of its noncore assets," Deutsche Bank gaming analyst Bill Lerner said in a note to investors. "MGM could utilize the proceeds to pay down debt or help fund the company's development pipeline. We would not be surprised if the company pursued a similar tactic with some of its other tertiary assets outside of Las Vegas."

Bear Stearns gaming analyst Joe Greff said the deal's purchase price equated to almost 10 times the two casinos' cash flow.

"We view the purchase price and multiple as very good, and a positive for MGM as it unloads two non-core assets for a good price," Greff said.

Shares of MGM Mirage traded down Monday on the New York Stock Exchange, closing at $42.81, off a penny or 0.02 percent.