MGM Mirage on Wednesday said it planned to keep all its Las Vegas resorts after taking over rival Mandalay Resort Group and would not slow down on other expansion plans because of the deal, which will make it the world’s largest casino company.
MGM will own 28 properties that take in roughly $6.5 billion annually — if Mandalay shareholders and regulators approve the $4.8 billion acquisition — agreed to by both companies’ boards on Tuesday.
Controlled by Las Vegas resort pioneer Kirk Kerkorian, an 87-year-old billionaire, MGM is making its second $4-billion- plus deal in four years. MGM is building a string of 10 major properties on the Las Vegas Strip ,with about half the Strip’s hotel rooms, which is sure to draw regulators’ scrutiny.
Executives plan to close the deal by the end of the first quarter of 2005. And MGM is still considering plans to expand in Atlantic City, Britain and Singapore, among other regions.
“We expect to be a major player in the United Kingdom,” Chief Executive Terry Lanni said on a conference call, adding that MGM would not slow down Atlantic City plans, either.
Chief Financial Officer Jim Murren said the combined company would generate about $2 billion in cash flow and would use that to fund expansion and reduce debt, with paying a dividend a third priority.
Shares of MGM fell 62 cents to $48.88, but were still up more than 6 percent from their close of $46.03 on June 4, the day MGM announced its first offer to buy Mandalay. Mandalay dropped 8 cents to $67.80 on the New York Stock Exchange.
ALL IN THE TIMING
The companies agreed that MGM will pay $71 per share, or a total of $4.8 billion in cash, plus nearly $600 million for convertible securities, and would assume $2.5 billion in debt.
Fulcrum Global Partners analyst Joe Greff said Mandalay investors were discounting the stock from the acquisition price because it would take most of a year before the deal would close and shareholders would be paid for their holdings.
“It is the time value of money,” he said.
Fears that regulators could slow or scrap the deal also lingered, he said.
Murren said MGM was staying flexible on financing plans for the deal and had considered issuing some new shares or paying for Mandalay with debt.
MGM’s 2000 acquisition of Mirage Resorts for $4.4 billion will be a model in some ways for the current deal, said Murren, who was also chief financial officer of MGM then.
In that case, MGM issued $1.23 billion in new shares, half of which were snapped up by Kerkorian, who has recently received a $1.4 billion payout from studio Metro-Goldwyn-Mayer.
MGM Mirage will be the largest player by far on the Las Vegas Strip, combining Mandalay’s new convention center and an array of mainly mid-level casinos with MGM’s swanky Bellagio, MGM Grand and other resorts.
The company is expected to argue to Federal Trade Commission and Nevada state regulators that it will not dominate any market since it competes for gambling business with properties off Las Vegas Boulevard in the city and around the world, including tribal casinos in California.
Those casinos are spread over a much wider area than Las Vegas but rival it in size of gambling revenue, estimated at $5 billion or more, and California tribes are near a deal with the state to expand.
Mandalay President Glenn Schaeffer said executives at his company would smooth the transition but did not have any higher career objective at MGM.
Mandalay also agreed to pay a $160 million breakup fee if it received a better offer and pulled out of the deal, a copy of the merger contract filed with regulators showed.