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Analyst Says MGM Grand Stock is Undervalued

27 March 2000

Jason Ader -- Bear, Stearns & Co.'s prominent gaming analyst - calls MGM Grand a "great buying opportunity'' at its current price levels. Ader issued his report Friday, when the stock was trading for $21. It lost 50 cents today, closing at $20.50.

MGM Grand plans to pay $6.7 billion for Mirage Resorts. Ader based his bullish comments on a belief that the Mirage deal will close sooner than expected and that MGM Grand will realize "much more cost synergies and revenue enhancement opportunities than originally estimated."

Ader originally estimated that the combined company would save $125 million in costs. In his report Friday, he said that estimate may be too conservative. The combined company will save money on entertainment booking fees, purchasing of supplies and insurance, and the elimination of redundant marketing offices around the world.

An early closing would mean that these savings could be substantial enough to affect this year's financial results, Ader said. He also said that "non-strategic asset sales will occur," but he said it's too early to say which MGM/Mirage properties might be sold. And he expects a secondary stock offering, which would enable MGM Grand to keep its investment grade rating after the cost of the Mirage purchase.

Based on a five-year analysis, Ader calculates an "asset value" for MGM of $29 to $32 a share. "Given the recent softness in the stock, we believe the current share price represents a very compelling buying opportunity," he concludes.

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