Shareholder suits won’t block merger of Mirage, MGM Grand

David Strow

Thursday, May 25, 2000 | 10:52 a.m.

A series of shareholder lawsuits attacking provisions of Mirage Resorts Inc.'s merger agreement with MGM Grand Inc. won't be used as grounds to block the pending merger, an attorney for the plaintiffs said Wednesday.

The move means the $6.4 billion merger between two gaming industry titans is all but assured of closing this month. Mirage shareholders are expected to vote on the deal Tuesday, followed by Nevada gaming regulators just hours later. Both are expected to give the transaction their blessings. If that happens, the deal will close Wednesday.

Roger Harwood, a New York attorney for Crandon Capital Partners, said he decided not to move for a preliminary injunction that could have blocked the consummation of the merger. Crandon, an investment firm that holds shares in Mirage, has sued Mirage and Chairman Steve Wynn twice over the MGM Grand deal.

"I made a determination that as far as the merger was concerned, there were monetary damages available," Harwood said.

Harwood said he will press forward with both lawsuits, and will continue to seek damages for Mirage shareholders.

Crandon first sued Mirage on Feb. 23, the day MGM Grand first offered to buy Mirage for $17 per share. In this lawsuit, Crandon claimed Wynn and Mirage's board would not act in the best interests of shareholders. Attorneys representing Crandon also filed suit on behalf of a number of other individual shareholders that raised the same charges.

Twelve days later, Mirage accepted a $21 per share offer from MGM Grand -- and since that time, there hasn't been any activity with the February lawsuits.

James Pisanelli, attorney for Mirage, said the court granted Mirage an open extension of time to file its response to these suits.

"As of right now, none have been settled," Pisanelli said.

Harwood said he's assembled a financial team of experts to go through Mirage's books to determine a fair market value for the company. If this value exceeds the $21 offer, Harwood would then seek monetary compensation for the difference.

Harwood said he doesn't believe the $21 per share offer is fair, but said he couldn't say what a fair offer would be.

"If I knew the answer to that, I'd tell you, but that's for the domain of financial experts," Harwood said.

The second lawsuit, filed at the end of March, came in response to a disclosure that Wynn had been granted a right of first refusal on Bellagio artwork sold by MGM Grand after the merger. This right contains a provision that allows Wynn to match any outside offer for the art -- but it also granted Wynn the right to purchase the art at an alternative price. This alternative price would be either the book value of the artwork or its appraised value, whichever is higher.

Crandon claims this gives Wynn the right to buy the art at below-market prices to the detriment of shareholders, a charge Mirage denies. Crandon is trying to impose a constructive trust on the art, with any sales proceeds being held in this trust until a court can determine if Wynn's agreement is fair to shareholders.

State Judge Nancy Saitta was supposed to issue a decision on establishing a trust on Monday. Prior to this decision, however, both parties agreed to push back hearings until June 26 -- well after the merger is expected to be complete.

"We had filed a motion to dismiss, which had a hearing date after the initial hearing for the artwork issue," Pisanelli said. "The plaintiffs asked us to consolidate. (On June 26), we're scheduled to discuss dismissal and the request for the constructive trust."

The only thing Harwood said he wants to prevent before that hearing, he said, is the sale of any art from the Bellagio collection until Saitta issues her decision.

"The plan is to keep the artwork in status quo until the hearing," Harwood said. "The defendants have said nothing will be sold, pending the hearing."

But Pisanelli denied Mirage or MGM Grand has made any such promise -- and said MGM Grand will be free to proceed with the art sales after the merger's close.

"As far as I know, there are no restrictions (on the sale of artwork), and there's certainly no stipulation to that effect," Pisanelli said. "If this came from anything I discussed with co-counsel (for Crandon) in Nevada, there's been a material misunderstanding."