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News
MGM Grand in Mirage bid
February 23, 2000: 3:29 p.m. ET

The nearly $3.3B offer may spur consolidation along Las Vegas Strip
By Staff Writer Tom Johnson
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NEW YORK (CNNfn) - MGM Grand Inc. offered to acquire rival casino operator Mirage Resorts Inc. for nearly $3.3 billion Wednesday, a deal that would create the pre-eminent hotel and gambling chain along the Las Vegas Strip.
    In a filing with the U.S. Securities and Exchange Commission Wednesday morning, MGM (MGG: Research, Estimates) offered to pay $17 cash, or $7 cash and $10 in MGM stock, for each outstanding share of Mirage, one of the largest and most flamboyant casino operators in the United States. MGM said its offer would expire on March 8.
    Combined, the two companies would control more than half of the high-end casino business along the famed Las Vegas Strip and boast annual revenues of nearly $3.8 billion, creating an unrivaled force in the gambling business.
    "We definitely expected more consolidation in the industry, although it is always hard to imagine a deal of this magnitude," said Jason Ader, an analyst with Bear Stearns. "Mirage's management has underperformed and the stock has languished recently, making it a great opportunity for MGM Grand. But this will have to be a friendly deal if it has a shot of working."
    In a statement released early Wednesday afternoon, Mirage said it would consider the unsolicited bid by MGM at a board meeting "to be held in the near future." Company officials declined to comment further.
    
A friendly offer from MGM?

    In his letter to Mirage's board, MGM Chairman J. Terrence Lanni was careful to frame the offer as a friendly one, noting the combined entity "would be the undisputed leader in our industry by any measure."
    Lanni also proposed that the combined company consist of current members of both boards.
    "In addition to providing your shareholders with an immediate significant premium for their shares, we strongly believe that the revenue enhancement and cost reduction opportunities arising out of this combination would create a significant in the value of the stock of the combined company," Lanni said.
    James Murren, MGM's chief financial officer, said his company had not previously approached Mirage about a possible merger prior to its letter Wednesday. He also said the company had no intention of pursuing a possible takeover of the company.
    "We take everything day-to-day, but we do not have any intention at this point of being hostile," he said.
    Jeffrey Logsdon, a casino analyst with The Seidler Cos., said at the current acquisition price, which represents a 56 percent premium over Mirage's closing price Tuesday, MGM would be able to achieve annual cost savings of between $100 million and $200 million a year.
    "They certainly are buying the assets at the right price," he said.
    
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    Whether that price is enough remains to be seen. Mirage shares, which have been mired in a deep slump for nearly a year, jumped on word of the offer Wednesday, climbing 3-3/4 to 14-5/8 by mid-afternoon, a level still well below the $17 per share offer price. The company's stock closed Tuesday at 10-7/8, just a few cents above the stock's 52-week low.
    Dennis Forst, an analyst with McDonald Investments Inc., said investors were wary of bidding Mirage's stock up to the $17 level because of the uncertainty over how the company's board will react to the bid.
    "There's a lot of uncertainty over what [Mirage Chairman and CEO] Steve Winn wants to do here," Forst said. "I think there's a lot of concern that he may want to remain independent and keep control of his company."
    Wynn, who has served as a Mirage executive since 1971, now controls only about 12 percent of the company's outstanding stock, a result of his decision to sell a sizable chunk of his portfolio in recent years. That, in addition to the company's spotty financial performance, has hurt investor confidence in recent years and sent Mirage's shares tumbling, analysts said.
    
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    With the remainder of Mirage's management owning a less than 8 percent stake in the company, analysts note Mirage's board will have a more difficult turning down a lucrative offer.
    Forst also said a counter bid for the casino company was unlikely. Hilton Hotels Corp. (HLT: Research, Estimates), one of the world's largest lodging providers and an acquisition target of Mirage in the mid-1980s, has the financial firepower to enter a bidding war, but recently decided to exit the casino business for good, as did Starwood Hotels &  Resorts Worldwide Inc. (HOT: Research, Estimates).
    Forst said Harrah's Entertainment (HET: Research, Estimates) might have some interest in Mirage, but lacked the financial flexibility to enter a bidding war with MGM because it is still digesting several acquisitions of its own.
    Ader said he doubted Mirage would accept MGM's initial foray, but he believed the two companies ultimately should be able to forge a deal.
    "MGM Grand never shows all its cards when it makes a first move like this," he said.
    "This is a very tempting offer, and seeing how Mirage's management owns less than 20 percent of the company's stock, they are going to have to give it serious consideration," Logsdon said. "If they say 'We're not for sale,' that doesn't limit MGM's ability to do a tender offer."
    MGM is controlled by billionaire Kirk Kerkorian, who owns about 60 percent of the company.
    That company's stock finally rebounded last year as the company emerged from a nearly decade-long earnings slump, including a sharp decline in 1998. After falling early Wednesday, MGM shares reversed course and climbed 1 to 41-3/8 by early afternoon.
    
A wave of consolidation along the Strip

    With a glut of new casinos being built along the Vegas Strip, analysts have been predicting a forthcoming casino consolidation, particularly as gambling becomes more prevalent in other parts of the country. Casino chains are also competing against a growing number of gambling resorts being opened by Native American tribes.
    An MGM/Mirage combination would boast some of the most well known casinos in the industry including The Mirage - featuring attractions such as dolphins, erupting volcanoes and Treasure Island motifs -- The Golden Nugget, the MGM Grand Las Vegas and the New York-New York Hotel and Casino.
    MGM has expanded rapidly since opening its hallmark MGM Grand in 1993, a massive $1.1 billion complex featuring a 33-acre theme park and a $12 million bronze lion at its entrance. The company now has operations in Atlantic City, Detroit, South Africa and Australia.
    Mirage likewise has expanded aggressively, but, unlike MGM, it has largely been unable to overcome the high costs associated with expansion. The casino chain added the $1.6 billion Bellagio casino/hotel in Las Vegas and the Beau Rivage, a beachfront casino resort in Biloxi, Miss.
    The Beau Rivage, in particular, had a difficult first year, causing the company to miss its second-quarter earnings estimate last year.
    "They had two large construction projects and they have not done as well as people wanted them to financially," Forst said.
    Combined, the two companies would boast assets exceeding $7.4 billion, with Mirage currently controlling more than 60 percent of that total. Mirage also generates an annual revenue stream of $2.4 billion, far exceeding MGM's $1.4 billion, but Mirage's financial stock performance has turned the company from an acquirer to the one being acquired. Back to top
    -- Reuters contributed to this story

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.