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Best of Liz Benston

Gaming Guru

Liz Benston

Mandalay Resort Buyout is 'Revenue Story,' Officials Say

23 February 2005

MGM Mirage's top executive said he expects to close the company's $7.9 billion acquisition of Mandalay Resort Group in the next week or two following meetings with managers at each of the Mandalay properties.

In the next-to-last regulatory hurdle facing the historic deal, the state Gaming Control Board on Tuesday recommended approval of the Mandalay purchase, which now awaits a final vote Thursday from the Nevada Gaming Control Board.

Comparing the transition to MGM Grand's acquisition of Mirage Resorts in 2000, MGM Mirage Chairman and Chief Executive Terry Lanni assured regulators that rank-and-file employees will still be needed to run the Mandalay properties and that MGM Mirage hopes to keep the vast majority of workers.

As is common with mergers and acquisitions, some management-level workers and those in duplicative, back-office departments such as accounting will lose their jobs, Lanni said. The company hasn't yet determined how many people that might be, he said.

At the hearing, Lanni said there has so far been "limited contact with employees" because regulatory approval process has hampered the company's ability to communicate freely. That will change once the deal is approved, he said.

MGM Mirage President and Chief Financial Officer Jim Murren said the company has been waiting for the opportunity to "reach out to (Mandalay employees) and invite them into the family."

"There are people's lives at stake," he said.

MGM Mirage expects to save about $40 million by combining the companies, partly from eliminating some executive salaries and removing duplicate jobs. But that's not what's driving the deal, Murren said.

"This is a revenue story. This is not a cost-cutting story," he said. "This is taking a company we've admired for decades and giving it more financial resources."

Culinary workers union Secretary-Treasurer D. Taylor, who supports the deal, said both companies have a good relationship with the union. Non-management workers including nonunion employees should feel welcome at MGM Mirage, a company that has pledged to grow its workforce, he said.

"Those two companies have obviously shown creativity, innovation and a huge amount of capital investment in Las Vegas," said Taylor, who did not attend Tuesday's hearing. "I don't expect that to change."

MGM Mirage executives relied on past history to pitch the deal. Reinvesting profit into new hotel rooms, entertainment venues and restaurants since the Mirage acquisition in 2000 led to increased revenue, profit and employment at the Mirage properties, they told regulators. The company has spent about $1.7 billion in Nevada from 2000 through last year.

Executives also outlined the structure of the new company, which will continue to be called MGM Mirage and will retain all of the company's senior executives. Mandalay Resort Group Chairman and Chief Executive Mike Ensign, Vice Chairman Bill Richardson as well as the company's President and Chief Financial Officer Glenn Schaeffer will leave the company after the deal.

The Mandalay properties will be divided between MGM Mirage's two casino operating groups, MGM Grand and Mirage Resorts, in an attempt to group properties by geographic region, executives said.

The Mirage Resorts group, run by President and Chief Executive Officer Bobby Baldwin, will still oversee Bellagio, Mirage and Treasure Island on the Strip but also will take in Circus Circus Las Vegas and Circus Circus Reno, Mississippi's Gold Strike and Reno's Silver Legacy from Mandalay. That group will oversee the Boardwalk and its transformation into CityCenter, a $4.7 billion project featuring a casino resort, four hotels and several condominium high-rises, in addition to Beau Rivage in Mississippi and Monte Carlo, now half owned by MGM Mirage and Mandalay. Mirage Resorts also will take in MGM Mirage's New York-New York property from the MGM Grand operating unit.

John Redmond, president and chief executive of the MGM Grand unit, will continue to oversee the MGM Grand resort and Primm Valley Resorts. The group also will add Mandalay Resort Group's flagship Mandalay Bay resort as well as the company's Excalibur, Luxor, and Railroad Pass casinos. Mandalay's Laughlin casinos Edgewater and Colorado Belle also will join this group along with Nevada Landing and Gold Strike in Jean and the company's half-owned Grand Victoria riverboat in Illinois. The unit will manage the MGM Grand or Mandalay's part-owned MotorCity casino in Detroit -- whichever is not sold as a result of the acquisition.

Lanni said MGM Mirage will keep the other casinos besides the Detroit casino it is required to sell by law. A diversity of properties -- from the lower end to the high end -- will make the company stronger, he said. MGM Mirage will concentrate development efforts primarily in Las Vegas and secondarily, elsewhere in Nevada as well as Mississippi and New Jersey because those markets are the most casino-friendly, he said.

Billionaire dealmaker Kirk Kerkorian, majority shareholder of MGM Mirage, made a rare public appearance at Tuesday's hearing. In an interview with reporters, Kerkorian repeatedly praised Lanni and Murren for their skill in crafting and promoting the deal.

Kerkorian, 88, said Mandalay Resort Group's assets are appealing because they "match up very well" with those at MGM Mirage.

He also said he was "very much" surprised by the dramatic growth Las Vegas has experienced in recent years and said MGM Mirage has capitalized on that growth by being both an acquirer and a developer that also reinvests back into its properties.

MGM Grand's acquisition of Mirage created a strong company and a good corporate citizen but it's still difficult to predict the outcome of a deal this size, observers say.

"Certainly a consolidation of this size and scope is a dramatic change," said former Gov. Bob Miller, a gaming-industry attorney in Las Vegas. "There are elements of it that I think can benefit the community and there may be elements that are less preferable. But only time will tell."

At Tuesday's hearing, Lanni and Murren said MGM Mirage will continue a policy of reinvesting and developing in Las Vegas, where the company will generate nearly 80 percent of its revenue.

The company hasn't yet determined how much the combined entity will spend on new projects in future years and will do so once each property's business plan is reviewed in detail, executives said.

Not including the Mandalay acquisition, MGM Mirage is expected to spend about $400 million this year on various projects in Las Vegas and beyond. The company, which dominates the Strip entertainment scene by paying more state entertainment taxes than any other company, will spend an estimated $140 million on entertainment over the next couple of years.

MGM Mirage has refused suggestions by Wall Street dealmakers to diversify into other kinds of businesses because "we know what we know and we love Nevada," Murren told regulators.

Murren said the company has completed $7.5 billion in financing for the acquisition, including roughly $6.5 billion in bank loans arranged by Bank of America. The financing package -- the largest bank deal in the casino business -- attracted banks that are relatively new to the gaming industry, including Barclays and Royal Bank of Scotland, he said.

MGM Mirage will have about $13.3 billion in long term debt once it buys Mandalay and before it sells a casino in Detroit. That would make the company more highly leveraged than Harrah's Entertainment Inc., its closest competitor after Harrah's completes its expected acquisition of Caesars Entertainment Inc., but less debt-laden relative to earnings than many of its peers, Murren said.

The company expects to refinance about $3 billion in Mandalay debt and make debt reduction a priority in the short term, he said.

Mandalay Resort Buyout is 'Revenue Story,' Officials Say is republished from