Casino giant rejects $3.5 billion takeover bid; leaves door ajar

Robert Macy

Tuesday, Feb. 29, 2000 | 5:41 a.m.

Mirage Resorts, Inc. has rejected a $3.5 billion takeover offer by MGM Grand, Inc., setting up a poison pill defense while leaving the door ajar for negotiations on a better deal.

Mirage board members met for more than two hours Tuesday, then issued a news release saying the offer to acquire the company for $17 a share "is inadequate and not in the best interests of Mirage Resorts stockholders."

The board also invoked a stock option commonly known as a "poison pill" initiative, which essentially allows a company to increase its number of shares and make a takeover effort too expensive.

The deal offered by MGM Grand last Wednesday offered some $3.5 billion for the outstanding stock, plus assumption of $2 billion in Mirage debt.

The offer pitted two titans of the casino industry - Mirage Chairman Steve Wynn and billionaire Kirk Kerkorian, the majority stockholder in MGM Grand.

While Mirage board members rejected the $17 offer, they left the door open to future negotiations.

The news release said Mirage "would be willing to consider a transaction which would fairly reflect the long-term values inherent in the Mirage properties, brand name and good will, rather than an opportunistic bid which is timed to maximize values for the bidder."

Jason Ader, a casino analyst for Bear, Stearns & Co., saw that as a good sign.

"Nobody really expected Steve Wynn to capitulate and say 17 was a fair price," Ader said Tuesday night. "The most important part of the release is that he acknowledged his willingness to speak to MGM. Some skeptics on Wall Street thought Steve would not be willing to discuss any deal."

Ader said the key will be whether MGM can come up with a number that would satisfy Mirage and not dilute the value of MGM stock.

"MGM is adamant in not doing a deal if it's dilutive to their stockholders, which means they can only pay about $20 a share," Ader said. Any price much above $20 would be a challenge if they were to maintain the promise of not doing a dilutive deal."

Ader said it was a positive sign that Wynn was willing to talk.

"Everybody expected him to reject the offer," Ader said, "but the willingness to talk has a lot of people encouraged."

The next step is for the two sides to negotiate, Ader said.

"Kirk and Steve aren't ones to sit around and let the dust settle," the analyst said.

In its announcement, Mirage said it was putting in place a plan that would allow current stockholders to buy additional stock for half the market price if a person or group acquires more than 10 percent of the company.

Commonly known as a poison pill defense, such tactics are designed to increase the number of shares and make a takeover too expensive.

"This is a standard anti-takeover defense that one would expect in a company the structure of Mirage, where management owns a minority stake," Ader said.

Wynn owns about 10 percent of the stock, with the entire management team owning less than 20 percent, Ader said.

MGM Grand President James Murren did not immediately return a telephone call from the Associated Press seeking comment.

Wynn said the stock rights package was designed "to assure that all of Mirage Resorts' stockholders receive fair and equal treatment in the evnt of any proposed takeover of the company, and to guard against abusive tactics to gain control of Mirage Resorts without paying all stockholders a premium for that control."

The $17 offer last Wednesday was a premium of more than 56 percent over Mirage's closing share price of $10 7/8 the day before.

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

Wynn and Kerkorian have been described in the past as friends. The two have played a major role in shaping Las Vegas as the world's gambling capital and the fastest-growing city in America.

There have been rumors for several weeks that MGM Grand, buoyed by glowing fourth-quarter and 1999 financial figures, was in a buying mood.

MGM offered Mirage shareholders the option of taking $17 in cash for each share or $7 cash and MGM stock valued at $10.

The offer letter from MGM Grand Chairman J. Terrence Lanni proposed that the board of directors for the combined companies would consist of all the current members of both boards.

Despite owning the 3,025-room Bellagio hotel-casino, the biggest earning hotel on the Las Vegas Strip, Mirage disclosed fourth quarter earnings of $65.4 million in January that disappointed some analysts.

The company has struggled with its Beau Rivage resort that opened last March in Biloxi, Miss. at a cost of $650 million. The company had projected cash flow of about $80 million a year in Mississippi, but got only $4.6 million in the fourth quarter.

Meantime, MGM Grand reported all-time record revenues of $420.9 million for the quarter ending Dec. 31.

The company attributed the earnings boost to the strong casino and hotel volumes at its 5,005-room MGM Grand in Las Vegas, earnings from the acquisition of Primadonna Resorts Inc. and the successful opening of the MGM Grand Detroit Casino.

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 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 5,005-room MGM Grand Hotel on the Las Vegas Strip.