Firms eye merger leftovers

Wednesday, June 9, 2004 | 11:21 a.m.

Several companies -- from major gaming entities to smaller investors and nongaming companies -- will likely emerge to bid on certain casinos should MGM MIRAGE be willing or forced to sell off some assets as part of its proposed buyout of Mandalay Resort Group, experts say.

But experts disagree about whether any assets -- particularly on the Las Vegas Strip -- would be available for sale in the first place given that all of the companies' casinos are performing admirably and because they would have to be sold at a high price to justify the cost of acquiring the entire Mandalay empire.

At least two clients have recently called to discuss the procedure for buying up assets should the combined entity sell off any of its casinos as part of the deal, said David Atwell, a Las Vegas casino broker.

The clients are smaller gaming companies, one of them based outside of Nevada, he said. He declined to identify them.

As a sign of investor interest in casinos, about 10 "capable parties" emerged last year to bid on the sale of the Las Vegas Hilton and Aladdin hotel-casinos last year, he said.

Jefferies & Co. bond analyst Ray Cheesman said up to six parties have approached his firm this year to discuss "how to get into the gaming business."

"With high barriers to entry, the competitive environment doesn't change so rapidly," he said. "And gaming companies have pretty high margins. People tend to spend money regardless of where the economy is moving."

Newcomers plus established companies such as Marriott, Las Vegas Hilton buyer Colony Capital LLC and even smaller gaming companies such as Argosy Gaming Co. and Ameristar Casinos Inc. might be interested in bidding on assets nationwide, Cheesman said.

"They haven't (created) many more (casino) licenses in a long time and there isn't much Strip land available anymore," he said.

Caesars Entertainment Inc. and Boyd Gaming Corp. are already focused on their own Strip projects and are less likely to snap up more properties, he said. Stratosphere casino owner Carl Icahn is an aggressive financier but probably wouldn't jump to acquire casinos "at Strip prices," he said.

Should the deal be consummated, Bear, Stearns & Co. bond analyst John Mulkey said he doubts MGM MIRAGE would shop around any of its major assets save for Detroit, where regulators have required different owners for each of the city's three casinos.

The companies' major casinos have "great balance sheets" and MGM MIRAGE could probably issue some stock to help finance the deal without unloading properties, he said.

Circus Circus on the Las Vegas Strip probably wouldn't fit into the combined companies' strategy, but MGM MIRAGE probably wouldn't sell it "to meet some imaginary threshhold" of market ownership on the Strip, for example, he said.

Circus Circus "makes a tremendous amount of cash flow and there's a lot of land" surrounding the property for future development, he said.

"I think they'd like to keep everything, though that might be an issue with (regulators)," KeyBanc Capital Markets gaming analyst Dennis Forst agreed.

One Las Vegas source who declined to be named said the potential MGM MIRAGE-Mandalay merger might lead to the sale of non-core assets such as Mandalay's two casinos in Laughlin, its half-owned Silver Legacy casino in Reno and its two casinos in Jean.

Even if the company is interested in selling, it would have a "difficult time" justifying a sales price that compares with the $7.65 billion it intends to pay for the whole company, the source said.

"There's always people willing to buy even before a deal is closed. They want to get their name on the list," the source said.

Harrah's Entertainment Inc., an aggressive buyer of casino properties, has emerged as a likely bidder on potential assets.

"If any assets do come on the market we'll take a look at them and consider an acquisition if the price is right," Harrah's Entertainment Inc. spokesman David Strow said today.

"We consider Las Vegas and Atlantic City two of the top growth markets for gaming in the United States."