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Rod Smith

MGM Mirage-Mandalay Execs Ponder Future

17 June 2004

LAS VEGAS -- MGM Mirage bosses on Wednesday started pulling back the curtains on future plans for what will be the largest gaming company in the world after the merger with Mandalay Resort Group.

The new company's focus will be on expansion and using Mandalay's properties as a foundation for growth, company executives said in a conference call to analysts the morning after the two companies' boards met to accept MGM Mirage's $71-per-share buyout offer for Mandalay.

Mandalay's board late Tuesday accepted MGM Mirage's $7.9 billion offer, which includes assumption of approximately $2.5 billion in Mandalay debt and $600 million in convertible debentures. The deal, which is expected to close in the first quarter of 2005, was approved by MGM Mirage's board earlier in the day.

Executives for the two companies said the buyout will immediately add to shareholder value, create synergies, especially with convention business, and open new possibilities for Strip developments.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said the sale should add about 9 percent to earnings per share as soon as the buyout is consummated, based on preliminary data provided by MGM Mirage.

Once the deal closes, MGM Mirage will own and operate 28 properties in Nevada, Mississippi, Illinois, Michigan and New Jersey. It will have more than 70,000 employees and will cater to a broad customer base, MGM Mirage Chairman Terry Lanni said.

Its holdings will include not only MGM Mirage properties such as Bellagio, The Mirage, Treasure Island and MGM Grand Las Vegas, but also all of Mandalay's properties, including Mandalay Bay, Luxor, Excalibur and Circus Circus. The combination will give it a potential customer base on the Strip ranging from value-oriented to ultrahigh-end and chic.

The buyout will also give MGM Mirage the fifth-largest convention center in the country, creating new opportunities to further develop Las Vegas as a significant convention alternative for consumers, MGM Mirage President Jim Murren said.

Lanni said his company already operate about 1.1 million square feet of meeting and convention space and will add about 1.5 million square feet with the acquisition of the Mandalay Convention Center.

He said that will help his company attract larger conventions and boost earnings because more of them will stay in its properties, which will be able to cater to all market segments following the buyout.

Mandalay President Glenn Schaeffer added that his company regularly runs out of hotel rooms to house convention customers long before it runs out of meeting space.

Murren also noted that Las Vegas has been emerging as a center for the global business of conventions, and the merger will not only boost company performance, but will help it attract even more meetings to Las Vegas and away from other convention hubs.

Greff said the combined companies also will be able to achieve synergies by laying off administrative personnel. He estimated that at least half of Mandalay's corporate expenses could be eliminated if the merger is completed.

Murren said MGM Mirage has no plans to sell any of the hotel-casinos or real estate it is picking up, except for one of the two casinos in Detroit the two companies own, which will be necessary because of Michigan's gaming laws.

He said legal and financial consultants that have been retained to help close the deal have advised the company it is unlikely regulators will require the sale of any properties, so any divestitures would be done at the company's discretion, possibly to help pay down debt, which it hopes to do quickly.

Murren also said the company is serious about developing four tracts of prime land on the Strip with the free cash flow the merged company will generate, estimated by Wall Street analysts at more than $750 million a year.

MGM Mirage has openly discussed the possibility of redeveloping its Boardwalk casino and the remainder of the 55 acres between the Bellagio and the Monte Carlo, which operates now as joint venture between the two companies.

Now, it will also have a chance to develop the 22 acres Mandalay owns along Russell Road and 15 acres it owns across from Luxor, Murren told analysts.

Executives for both companies declined to discuss in detail provisions of the sales agreement. But they said the agreement will be filed with the Securities and Exchange Commission within a week.

Executives of the two companies also said it is too early to have "locked in" any Mandalay Resort Group employees. But Lanni said he hopes they elect to remain in their positions, as most Mirage Resorts workers did when the company was absorbed by MGM Grand in 2000.

Although the companies do not expect significant layoffs, Greff said there will be inevitable employment friction while the two corporate cultures are being merged, as was the case with the Mirage Resorts acquisition.

Schaeffer also said top management at Mandalay has made no commitments except to help with a smooth, rapid and successful integration of the two companies.

"We have no higher career objectives than achieving that," he said.

MGM Mirage shares closed Wednesday at $48.88, down 62 cents, or 1.25 percent. Mandalay shares closed at $67.80, down 8 cents, or 0.12 percent.

MGM Mirage-Mandalay Execs Ponder Future is republished from