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Rod Smith

MGM Mirage Extends Deadline on Buyout Offer

9 June 2004

MGM Mirage Tuesday extended the deadline on its offer to buy Mandalay Resort Group until 5 p.m. Friday, leading Wall Street analysts to believe the two companies have reopened meaningful talks on what would be the largest gaming merger ever.

Both companies declined to comment on the extension that was announced just an hour before the original 5 p.m. Tuesday deadline expired on MGM Mirage's $7.65 billion offer to buy Mandalay.

However, Wall Street analysts said the extension suggested amicable discussions are under way and, with no other bidders emerging Tuesday, MGM Mirage wanted to give Mandalay more time to evaluate its $68 per share offer.

Deutsche Bank analyst Marc Falcone said the two companies are probably in discussions but need more time to evaluate what is in the best interests of their share- holders.

One source close to the negotiations told The Associated Press, "We need a couple of extra days to hammer out some details. This is progressing well."

Mandalay has hired investment banking firm Merrill Lynch to assist in any negotiations. It also has hired the New York law firm of Wachtell, Lipton, Rosen & Katz as outside counsel in addition to Cravath, Swaine & Moore, which has expertise in merger and acquisitions.

MGM Mirage is not using an investment banker but has hired Los Angeles law firm Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro as its legal adviser.

Lehman Bros. analyst Jane Pedreira said the three-day extension makes sense because no other bidder has entered the fray and MGM Mirage does not want to bid against itself or encourage further increases in the price of Mandalay's stock.

Eric Hausler, gaming analyst for Susquehanna Financial Group, agreed that constructive talks are probably ongoing because, if negotiations had not been resumed, Mandalay would simply have rejected the offer.

Falcone said there are "unconfirmed reports" that MGM Mirage went public with its unsolicited offer late Friday after negotiations broke off between the two Las Vegas-based gaming companies.

Earlier Tuesday, Wall Street analysts and investors predicted the two gaming giants would reach an agreement soon on a sale price of about $75 a share.

"In any case, we believe this transaction will happen which will maximize the value for both sets of shareholders," he said, estimating Mandalay will go for between $72 a share and $75 a share.

Managers for institutional investors with substantial holdings in Mandalay said shareholders will be disappointed if the deal closes for $68 a share. Nevertheless, they are enthusiastic about the sale and expect management to proceed with negotiating an acceptable price, especially given the premium the price represented over recent values.

At $68 a share, the offer represents a 21.8 premium over Mandalay's closing price of $55.84 on June 2, the day MGM Mirage officials said they first broached the subject of a deal to Mandalay executives, according to Securities and Exchange Commission filings.

Other analysts who were not willing to speak on the record predicted the final sales price will be closer to $80 a share and will automatically add to MGM Mirage earnings at a price up to $81 a share, which would send the total cost well over $8 billion.

If the deal closes, even at $68 a share, it will be the largest merger in the history of the gaming industry and create the largest hotel-casino operator in the business.

Previously, the largest buyouts were MGM Grand's purchase of Mirage Resorts for $6.4 billion in 2000, and Park Place Entertainment's purchase of Caesars World for $3 billion in 1999.

MGM Mirage and Mandalay Resort Group had combined revenues of $6.4 billion last year, compared with Caesars Entertainment, which would be the second largest gaming company in the world based on 2003 revenues of $4.6 billion.

MGM Mirage owns some of the most popular high-end and mid-tier properties on the Strip, including the Bellagio, the MGM Grand and The Mirage. A merger would give it the Mandalay Bay and Luxor, as well as the lower-end Excalibur and Circus Circus. The companies also jointly own the Monte Carlo on the Strip.

Meanwhile, analysts were downplaying the prospects of other casino operators starting a bidding war for Mandalay, including Harrah's Entertainment, which Blaylock & Partners analyst Ray Neidl and others agreed would be the most likely rival suitor.

Harrah's chief Gary Loveman confirmed that Tuesday when he categorically told Wall Street analysts that his company does not plan to make any bids for Mandalay.

He explained the two companies' strategies are not complementary, and added Harrah's has no interest in Mandalay's Reno and Laughlin casinos.

Harrah's spokesman David Strow, however, said later Tuesday that his company would look at any individual Mandalay or MGM Mirage properties a merged company might spin off and consider acquisitions if the prices are right.

Analysts have said regulators may force the sell-off of some of the 32 properties a combined MGM Mirage and Mandalay would own because of market share concerns.

Regulators are expected to force the sale of one of the two casinos a combined company would own in Detroit because of antitrust concerns, an issue the Federal Trade Commission and the Nevada Gaming Control Board also would have to address in the Las Vegas market.

Michigan businessman and casino owner Don Barden, who owns Fitzgeralds in downtown Las Vegas and failed in previous efforts to buy a casino in Detroit, told the Detroit Free Press Monday that he's interested in buying one of the Michigan properties.

Analysts also said an emerging company probably would consider selling other properties, either because they would not fit with its strategic marketing plan or to raise capital to pay for the buyout or future expansion.

Las Vegas Sands, owner of The Venetian which has also been the subject of rumors as a possible rival bidder, declined to deny interest in bidding against MGM Mirage or admit interest in picking up individual parts that might be sold.

Bond analysts who asked not to be named, however, said it made sense for The Venetian to want to add the Mandalay Convention Center to its portfolio, as well as additional hotel rooms, which would provide a reason for the company to make a bid on Mandalay Resort Group.

They also said it would make sense for The Venetian to be interested in buying Treasure Island if the Strip property was put up for sale.

Picking up Treasure Island would give The Venetian control of two of the four corners at Las Vegas Boulevard and Sands Avenue.

MGM Mirage Extends Deadline on Buyout Offer is republished from