Wynn willing to talk with suitors

David Strow

Wednesday, March 1, 2000 | 11:22 a.m.

MGM Grand Inc. was mum this morning on its campaign to acquire Mirage Resorts Inc., one day after the Mirage board rejected MGM's $5.4 billion bid as "inadequate" and "opportunistic."

Still, analysts said silence shouldn't be confused with inactivity. In all likelihood, they say, MGM Grand executives are now trying to figure out if the company could go higher than $17 per share in its effort to acquire Steve Wynn's company -- particularly since Mirage Resorts has indicated it's willing to talk.

"Any casino company that is remotely interested will try to sit down with Mirage and discuss the situation," David Anders, gaming analyst with CS First Boston, said. "There's now an open invitation to sit down and discuss this."

Mirage Resorts stock was up 19 cents to $15.94 this morning. MGM Grand shares fell 94 cents to $18.94.

No one on Wall Street was surprised by Mirage Resorts' rejection of MGM Grand's bid of $17 per share -- an offer most analysts called too low. What did surprise many was the fact Wynn and Mirage Resorts are at least willing to discuss a buyout.

"There were some people that were so negative, saying, 'Steve would never sell the company,' " said Jason Ader, senior managing director with Bear Stearns. "Steve's a smart guy ... that was too pessimistic. I'd say we were pleasantly surprised."

Now, the unanswered question is what Mirage Resorts believes is a fair price -- and whether that is anywhere close to what MGM Grand is willing to pay. MGM Grand offered 56 percent more than Mirage Resorts' stock was trading for last week -- but it also offered a substantial discount below the $26.38 level Mirage Resorts shares reached last May.

"I suspect there's a pretty wide difference between what MGM is willing to pay and what Mirage is willing to accept," Joe Coccimiglio, analyst with Prudential Securities, said.

In its announcement Tuesday, Mirage Resorts said it "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."

However, Mirage Resorts also said it believed "this is a challenging time to achieve optimal terms for a business combination," noting the depressed values of stocks across the gaming sector.

"A slight concern of mine is management indicating now may not be a great time to sell because of a low point in the valuation of gaming companies," Anders said. "That's not something that's likely to change quickly."

It is widely thought that MGM Grand would be able to increase its bid above $20 per share and still make the deal immediately profitable. But MGM Grand has said it's not willing to do a deal if it would depress earnings, and most analysts believe that would happen once the price goes into the mid $20s.

"Kirk Kerkorian (the controlling shareholder of MGM Grand) is a smart guy, as smart as they come," Ader said. "He didn't make a $17 offer expecting Steve to say, 'OK, take my company.'

"He's a chess player ... he's thinking three, five, maybe even 10 moves ahead."

If MGM Grand is willing to raise its price another $3 to $5, Ader said, Mirage Resorts should leap at the opportunity.

"They have to remember that (Beau Rivage) has been underperforming original expectations, and (the Nevada gaming industry) is at risk of further erosion from California Indian gaming," Ader said. "One can only hope Steve will be reasonable, and see the long-term value creation potential (with MGM Grand)."

Stuart Linde, analyst with Lehman Bros., believes Kerkorian and MGM Grand may actually back away, at least for the time being, to put additional pressure on Mirage Resorts and Wynn -- and, ultimately, achieve a better share price. MGM Grand's offer expires in eight days.

"Knowing the type of company they are, they might back away, let Mirage's stock hover, then come back again," Linde said. "They'll look to be opportunistic."

One possibility that became less likely Tuesday was the scenario of MGM Grand going hostile in its bid to acquire Mirage Resorts.

That was already considered unlikely, considering MGM Grand's fiscal conservatism and Nevada laws that make it extremely difficult to successfully execute a hostile takeover. On Tuesday, Mirage Resorts raised the bar further by adding a "poison pill" -- a measure designed to make the cost of a hostile takeover extremely expensive.

Poison pills activate after a shareholder acquires a certain amount of stock without the blessings of the board of directors. Once triggered, they give shareholders the right to buy new shares in the company at significantly discounted prices -- a move that can easily double the price a suitor must pay for a target company.

Mirage Resorts' poison pill will be triggered if any shareholder passes the 10 percent mark. It will also go into effect if any company makes a tender offer for more than 10 percent of the company. Those margins, while not unheard of, are quite low for a poison pill provision.

"(Shareholders) may believe that their best interests are served by having the stock go to the highest bidder ... that kind of poison pill precludes that kind of war," said Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada at Reno. "Now, it's just more blatant."

Another possibility is for a bid by Harrah's Entertainment Inc. or even Park Place Entertainment Corp., particularly since Mirage Resorts is willing to talk to suitors.

Ader said a Harrah's bid -- which is considered more likely than a bid by Park Place -- would be a mistake.

"Harrah's would be crazy to compete against MGM," Ader said. "They don't have the balance sheet, and their plate is full. It would be to the detriment of Harrah's shareholders."

Moreover, Coccimiglio said, MGM Grand has a powerful ace in the hole with Kerkorian.

"They have a deep-pocketed shareholder in Kerkorian ... that's a distinct advantage over Harrah's," Coccimiglio said.