Mandalay rejects MGM MIRAGEs $7.65 billion bid

By Liz Benston (contact)

Friday, June 11, 2004 | 4:40 a.m.

Mandalay Resort Group this afternoon rejected a $7.65 billion buyout offer from MGM MIRAGE over concerns that the combined company would be forced to sell off properties to appease regulators.

Meanwhile, MGM MIRAGE officials declined comment this afternoon about whether the company would present another and potentially higher offer for Mandalay Resort Group.

Analysts had speculated that talks had stalled because MGM MIRAGE was playing hardball by sticking to its offer of $68 per share and that Mandalay was pressing for more after having reported its most profitable quarter in history.

But price wasn't what ultimately killed the talks, Mandalay President and Chief Financial Officer Glenn Schaeffer said.

"The terms of the MGM MIRAGE proposal asked Mandalay shareholders to bear a far disproportionate share of the risk," Mandalay President and Chief Financial Officer Glenn Schaeffer said. "It is not in the best interest of Mandalay shareholders to agree to a deal that gives MGM control over whether it closes," he said.

"What began as an initial offer to purchase this company's shares morphed this morning into what amounts to an option on our company's shares for 15 months while freezing us in position," Schaeffer continued. "This would not be an acceptable outcome for our shareholders."

A source familiar with the negotiations, who declined to be identified, said that early this morning, MGM MIRAGE proposed the right to terminate the deal in 15 months if regulators were to ask for any property divestitures. MGM MIRAGE would have paid Mandalay a breakup fee of $100 million, the source said.

"Look at our earnings over the past several months. Can you imagine where we could go in 15 months?" the source said. "This was a nonstarter."

"We were crystal clear from Day One that any points of regulatory risk would belong to MGM MIRAGE and not shareholders," Schaeffer said. "We can't put our future on hold for 15 months. We would be highly restricted and restrained in our operational and financial conduct. The company would stand in place while regulatory approvals came in as (MGM MIRAGE) liked."

"Mandalay's earnings power is on a decided upswing, represented by a string of record quarterly results," Schaeffer said. "Our track record for expansion, innovation and strong profit margins speaks well for our strong future," he said.

Whether regulators would have forced the combined company to sell off properties and which properties might be sold wasn't for company officials to decide, Schaeffer said.

"I'm not a regulator. That's not for me to speculate," he said. "The issues, whether they're antitrust, are all solvable. (MGM MIRAGE) was not willing to solve them."

The deal otherwise had financial merit, Schaeffer said.

MGM MIRAGE publicized its unsolicited offer for Mandalay last Friday and later extended the deadline for its offer from Tuesday to 5 p.m. today. The financial markets were closed today in remembrance of former president Ronald Reagan.

For more on this story, read Monday's Las Vegas Sun.

Liz Benston is a gaming and tourism writer for the Sun and its sister newspaper, In Business Las Vegas. She can be reached at (702) 259-4077 or by e-mail at benston@lasvegassun.com.