MGM Grand sets its sights on Mirage Resorts, betting billions on a deal

Robert Macy

Wednesday, Feb. 23, 2000 | 1:26 a.m.

MGM Grand Inc., buoyed by record earnings, has made an unsolicited offer to buy Mirage Resorts Inc. for $3.5 billion in cash and stock, setting up a potential battle between two casino titans.

The offer was 56 percent higher than the market value of Mirage and also included the assumption of $2 billion in debt, a deal so rich that it could discourage any other bidders, analysts said Wednesday.

Mirage issued a brief statement Wednesday, saying only that the "unsolicited proposal" would be considered by the company's board of directors "in the near future."

The deal involves two of the world's largest casino companies and two of the industry's most powerful figures - Mirage Chairman Steve Wynn and billionaire Kirk Kerkorian, the majority stockholder in MGM Grand.

The two men, who helped shape Las Vegas as the gambling capital of the world, have a relationship that is considered very cordial. While Wynn has sought a high profile, Kerkorian has chosen to remain in the background while amassing a fortune in hotel-casinos, MGM film studios and Chrysler Corp.

Casino analysts aren't certain how the drama between the gambling giants will play out, but they say it's unlikely other suitors will surface.

"I don't see anybody else coming up right now," said Jason Ader of Bear, Stearns & Co. "Harrah's and Park Place have their plates full."

"There aren't many gaming companies that could do this," said Joe Coccimiglio of Prudential Securities.

"I don't think Park Place will do anything since they just acquired Caesars. It's a stretch for Harrah's and Mandalay Resorts is too leveraged," Coccimiglio said, referring to other major casino companies.

Coccimiglio said egos could play a key role in whether the deal succeeds.

"People know Wynn is not likely to say yes," Coccimiglio said. "We're talking about a control issue, which company gets to call the shots. I don't know if you can get the egos in line. Who gets to run the show? That's always the sticking point. Wynn has been doing it for 27 years."

J. Terrence Lanni, MGM chairman, said in a letter to Wynn, "It is our intention that this powerful combination be accomplished on a friendly basis."

Wynn did not immediately return a phone call seeking comment.

The letter offered to acquire the stock at $17 a share, either all cash or $7 cash and MGM Grand stock valued at $10 per share. The offer would cover 200 million outstanding shares plus stock options, with a total value estimated by analysts at $3.5 billion.

Mirage stock peaked at $26 a share in the spring of 1999, but has declined in recent months. Wednesday's offer was more than 56 percent higher than Mirage's closing share price of $10.87half on Tuesday.

Kerkorian bought 4.9 percent of Mirage's stock in September, then sold it weeks later. The purchase was described as "for investment purposes only."

When Mirage prices dropped in recent weeks, "people wondered if it showed up on Kirk's radar screen," Ader said.

Lanni said the deal would create an opportunity for more revenue and lower costs that would boost the value of the combined company's shares.

Analysts agreed.

"Strategically this is a very good fit," said Coccimiglio. "You have two companies who are dominant in the high roller business and battle each other for that business. They could join forces, cut back on their offices in the Far East, and the degree of rebates could be reduced to those customers."

"At the end of the day it's a very powerful deal," said Ader. "The two companies have over 50 percent of the market share in Far East high roller business."

"We made it quite clear that this is a friendly offer," James Murren, president of MGM Grand, Inc. said Wednesday. "We invite the entire (Mirage) board to be a part of the board of the combined company."

Mirage owns the 3,025-room Bellagio hotel-casino, the biggest-earning hotel on the Las Vegas Strip.

But it has struggled with its $650 million Beau Rivage resort that opened last March in Biloxi, Miss., and its fourth quarter 1999 earnings for the MGM Grand in Las Vegas, earnings from the acquisition of Primadonna Resorts Inc. and the successful opening of the MGM Grand Detroit Casino.

MGM has also announced plans to develop a hotel and casino resort in Atlantic City, N.J., where Mirage is under way with similar plans.

Wynn has been credited with the current boom in Las Vegas, which dates back to his opening of the company's flagship Mirage hotel-casino in 1989. The company also owns the Bellagio, Golden Nugget and Treasure Island hotel-casinos in Las Vegas, half interest in the Monte Carlo resort here, and the Golden Nugget in Laughlin, Nev.

Kerkorian has been a major player in Las Vegas for more than a quarter of a century. He has built the world's largest hotel here three times. He built the International, now the Las Vegas Hilton, and later built the old MGM Grand, now Bally's-Las Vegas. In 1993 he opened the new MGM Grand on the Las Vegas Strip.