Wynn’s role unclear after record deal

David Strow

Monday, March 6, 2000 | 11:43 a.m.

MGM Grand Inc. today announced an agreement to acquire Mirage Resorts Inc. for a record-breaking $6.4 billion -- a deal that will create a new king of the Strip market.

MGM Grand's chairman this morning insisted that growth, not layoffs, would be the watch word as the companies merged. But the ultimate fate of Mirage Resorts' top official -- Chairman Steve Wynn -- remains unanswered, as both companies declined to comment on Wynn's role within the new company.

"I think that's a question you'd really have to ask Steve," said MGM Grand Chairman J. Terrence Lanni.

MGM Grand's all-cash offer of $21 per share is valued at $4.4 billion -- an increase of $1.1 billion from its initial offer Feb. 23. MGM Grand will also absorb $2 billion in Mirage Resorts debt.

The biggest payday will come for Wynn, who owns nearly 24 million shares of Mirage Resorts stock. At today's announced price, proxy materials indicate Wynn will receive slightly more than $500 million in cash for his shares.

Lanni said the deal was finalized early this morning.

"We've contemplated internally for a couple of years the possibilities of this transaction," Lanni said. "But the stars kind of lined up recently, and that's when we made our offer.

"This is truly a case where one plus one equals a heck of a lot more than two," he said. MGM Grand said the deal will enhance its earnings immediately.

Wynn, who last week called MGM Grand's $17 per share offer too low, said today's deal recognized the true value of his company.

"This extraordinary transaction fully embraces the value of the franchise created by each of the Mirage properties and the contribution made by the 32,000 individuals who are responsible for the franchise," Wynn said in a statement this morning.

Wynn had no further comment.

"I think it's a great deal for both parties in creating a casino company that's second to none," said Jason Ader, senior managing director for Bear Stearns. "It has the most compelling growth prospects of any company we follow."

Though Harrah's Entertainment Corp. was often mentioned as a competing suitor for Mirage Resorts, today's definitive agreement between Mirage Resorts and MGM Grand may signal an end to that flirtation -- particularly since the agreement carries a break-up fee of more than $130 million.

"I think (Harrah's) would be unwise to compete for Mirage," Ader said. "It's a friendly deal, and MGM is the best strategic buyer of Mirage.

"But Harrah's will be a player in the future. Don't count (Harrah's Chief Executive) Phil Satre out for a minute. They'll look around at other acquisitions."

A Harrah's spokesman had no comment on the MGM Grand-Mirage Resorts deal this morning.

If completed -- the companies said they expect the deal to close toward year's end -- MGM Grand would become the largest player on the Strip, with nearly 27 percent market share in rooms and casino space at six Strip properties. Mandalay Resort Group currently holds the title of the Strip's biggest player, with 26.7 percent of the Strip's rooms and 22.3 percent of its casino space.

It would come into a near-tie with Park Place Entertainment Corp. for the title of world's largest gaming company. Analysts project both companies would produce about $1.3 billion in cash flow in 2001.

"Within the entire leisure industry, (gaming companies) have a fairly small market share of all leisure dollars spent in the U.S.," said David Anders, gaming analyst with CS First Boston. "I'm sure the (Federal Trade Commission) will look at it, but at the end of the day, they don't have the market share to cause concern."

Since Park Place's acquisition of Caesars World Inc. attracted no antitrust resistance, Lanni said, MGM Grand is assuming this deal will also not attract FTC opposition as well.

"If we come close to Park Place (in size), and Park Place did not have a problem with antitrust, I would assume we would not," Lanni said. "No one company is going to dominate Las Vegas. We obviously wouldn't have entered into this if we had concerns about it."

A more immediate concern that could cause MGM Grand to consider asset sales will be the huge debt load the Mirage Resorts acquisition would create. In a report issued this morning, Duff & Phelps Credit Rating Co. estimated MGM Grand would have about $7.7 billion in debt once the merger was completed.

"The way this is structured is not positive at all for bondholders," said Steve Altman, analyst with Duff & Phelps. "The big unknown is what MGM intends to do to strengthen its balance sheet. They're committed to a strong balance sheet and an investment grade rating, but I don't know how they get there."

That might trigger the sale of assets or the delay of projects to pay down that debt, analysts said, as well as the sale of additional stock. MGM Grand said this morning that it is "committed to maintaining the strongest possible balance sheet," and expects to reduce that debt through the sale of "non-strategic assets."

What that might include hasn't been determined yet, Lanni said, though he insisted it would not include layoffs.

"We have a period of time here ... to study the options that are available to us," Lanni said. "One thing we're not going to do is harm the human resources side (of Mirage Resorts). We'll do nothing to hurt that whatsoever. Why would you want to cut back at a great organization?"

The most likely targets for asset sales, analysts said this morning, are Mirage Resorts' Golden Nugget hotel-casinos in downtown Las Vegas and Laughlin.

With the deal, Wynn will receive no equity in the merged company, signaling to most on Wall Street that Wynn may be on his way out at Mirage Resorts. There had been speculation MGM Grand controlling shareholder Kirk Kerkorian would be willing to make Wynn chairman of the combined company.

"His role is going to be to run Mirage Resorts carefully and responsibly, as he always has, between now and the end of the year," said Mirage Resorts spokesman Alan Feldman. "I'm sure he'll settle down, work out all the details over the next few months."

"Every one of us will have a chance to catch our breaths, look toward the future positively. There certainly will be no short-term changes."

Long-term, however, Ader said he believes Wynn will move along. But with an additional $500 million in his banking accounts, Wynn will have the capital to take on other projects if he chooses. One possibility, Ader said, is the Desert Inn, a property that recently went back on the market, and has land available for expansion.

"My sense is he will not have a role (at MGM Grand-Mirage), other than helping with the transition process," Ader said. "It sounds like he's ready to pursue other passions in life, but he's not one to fall off the radar screen."

Dave Ehlers, chairman of Las Vegas Investment Advisors, said Wynn is probably simply tired of dealing with Wall Street.

"He's probably sick and tired of having shareholders, to be perfectly blunt about it," Ehlers said. "Trying to make money trying to figure out what Steve Wynn is going to do is a tough way to make money."