MGM-Mandalay buyout breezes by Control Board

Wednesday, Feb. 23, 2005 | 11:15 a.m.

Even before the state Gaming Control Board met to consider the antitrust implications of MGM Mirage's request to acquire Mandalay Resort Group, observers were labeling the outcome a slam dunk.

With virtually no opposition to the deal voiced at Tuesday's special meeting, the final decision -- a unanimous recommendation of approval -- followed a script that was as predictable as a Harlem Globetrotters game.

The board, minus new member Mark Clayton, who was recused, sent its approval to the Nevada Gaming Commission, which will take up the matter in a special session Thursday afternoon in Las Vegas. The five commissioners attended the meeting and the same industry observers who predicted a smooth ride for MGM Mirage before the Control Board expect a similar outcome before the commission.

The commission's stamp of approval on the deal is the last major regulatory hurdle MGM Mirage needs to clear to complete the acquisition, which will put resorts such as Mandalay Bay, Luxor, Excalibur and Circus Circus under the same corporate umbrella as the MGM Grand, Bellagio, Mirage and Treasure Island.

The Federal Trade Commission signed off on the deal last week and Mississippi regulators gave their OK in December. Michigan and Illinois need to license MGM Mirage but don't have the authority to hold up the deal.

In the next week or two, MGM Mirage expects to sell either its MGM Grand casino or Mandalay's MotorCity property in Detroit to comply with Michigan law preventing one company from owning two or more casinos there, MGM Mirage Chief Executive Terry Lanni said at the hearing.

The company also expects to put Mandalay's part-owned Grand Victoria riverboat in Illinois into an escrow trust so that regulators can consider the ownership transfer at a later date.

The Illinois Gaming Board lacks enough members for a quorum. Lanni said MGM Mirage was in discussions with the Pritzker family, which owns the remaining stake in Grand Victoria and has expressed interest in taking over management of the riverboat.

The deal would create the world's largest casino company with 11 Strip resorts and 75,000 employees. That dominance could be challenged later this year when Harrah's Entertainment Inc. attempts to clear the same regulatory hurdles in its bid to acquire Caesars Entertainment Inc., a $9.4 billion transaction that is expected to get similar scrutiny in the second quarter.

Drama was in short supply Tuesday, even when board members took up arguments regarding MGM Mirage's compliance with gaming regulation 3.070, the state's casino antimonopoly rules.

The regulation requires applicants to prove an acquisition isn't anticompetitive and that it is in the best interest of the public.

The only issue on which regulators saw things differently from the applicants was over how they define the markets they serve.

"MGM (Mirage) thinks its market is at the very least all of North America," said Board Chairman Dennis Neilander following the session that lasted just over three hours. "They look at their competition as Native American gambling, the riverboats, Atlantic City, Mississippi. We felt we had to focus more on the Strip or the Las Vegas Valley."

MGM Mirage officials said the center of their universe is Las Vegas and they have to compete with Mexico and the Caribbean for tourism dollars.

In the final analysis, regulators and the company agreed that the biggest source of concern regarding the acquisition was the merged company's dominance in table games and in its collection of live entertainment taxes.

Attorney Ellen Whittemore of Lionel Sawyer & Collins, one of MGM Mirage's contracted legal representatives, said the merged company would have 67.3 percent of the table games on the Strip and would collect 57.4 percent of the entertainment tax generated on the Strip.

While those two points made Neilander and board member Bobby Siller uneasy, they said their big-picture view of the deal is that Nevada has nothing to worry about the merging of the companies.

Siller said history had a lot to do with his decision.

"They (MGM Mirage) have fulfilled their responsibility of being a good corporate citizen," Siller said in explaining his support.

With MGM Grand Inc.'s deal for Mirage Resorts Inc. occurring just less than five years ago, Siller said executives showed a solid record of investment in Nevada and fair and ethical business practices after growing by acquisition.

Siller also said he was comforted by the fact that four different teams of analysts -- MGM Mirage's financial counselors, a Control Board consultant, the staffs of the Federal Trade Commission and the Control Board -- reached the same conclusion: that the deal was not anticompetitive.

"There were four different groups looking at this and only one clear difference of opinion, that being on the market definition issue," Siller said.

Neilander and Siller cast the only votes on the deal. The board's newest addition, Clayton, was introduced at the beginning of the meeting, his first as a member. But the former Caesars Entertainment attorney said since his former company is involved in a similar deal, he wouldn't participate in the MGM Mirage-Mandalay debate. He said he would also recuse himself from the Harrah's-Caesars discussion when it occurs.

Prior to the board's discussion on anticompetitive issues, MGM Mirage executives gave a 45-minute presentation on their views of the merits of the deal. They emphasized that the gaming industry has evolved to the point that they consider their entertainment and retail components to be as important as their casinos.

That's why they say tribal gaming, riverboats and other destinations are bigger competitors to them than rival resorts along the Strip.

"We compete with every other city in the world," Lanni said in his presentation.

Economist Keith Schwer, director of the Center for Business and Economic Research at UNLV, said it may be decades before the effect of the acquisition becomes clear.

The success of MGM Grand's buyout of Mirage Resorts is still a relatively short-term story, Schwer said.

"I think the long-term question is really how Las Vegas has continued to reinvent itself and that is kind of hard to do when you have very large firms," he said. "But who knows. We have to come back 20 years from now to really see what the outcome of that would be."

At the hearing, MGM Mirage emphasized its commitment to Nevada by showing highlights of its $4.7 billion Project CityCenter plan to the board. It was the first time regulators have seen any specifics on the 66-acre project planned on the Strip between the Bellagio and Monte Carlo resorts.

The company also emphasized its commitment to its diversity and corporate philanthropy programs. Executives were rewarded with a pat on the back from black community activists who turned out Tuesday to cheer on the deal.

Stan Washington, vice president of Las Vegas Urban Promotions, was among the activists who criticized MGM Grand officials in 2000 when they acquired Mirage Resorts Inc. As an executive with the local NAACP chapter, Washington was among the critics who complained at the time that MGM Grand was not employing enough black executives, buying from minority-owned vendors or hiring minority contractors.

But Tuesday, Washington said he welcomed the MGM Mirage-Mandalay deal because critics were proved wrong by the company's efforts to improve its employment, contracting and purchasing diversity.

Shortly after the criticism MGM Mirage created the industry's first formal diversity training and advancement program and for the past three years has published data on the percentage of minority employees and managers in addition to the percentage of minority-run suppliers and contractors.

Louis Overstreet, executive director of the black-oriented Urban Chamber of Commerce in Las Vegas, also had good things to say about the deal.

"I think both of them have done an outstanding job, to basically go from no commitment (to diversity) to where they are today," Overstreet said after the hearing. "I have every reason to believe they will continue the tradition once the merger is finalized."

Mandalay Resort Group's diversity efforts are off to a "later start" but the company will likely catch up when it becomes part of MGM Mirage, he said.

While the approval of the deal was the main attraction at Tuesday's hearing, there were a few other highlights:

Kirk Kerkorian, the reclusive majority shareholder of MGM Mirage, made a rare public appearance and was greeted by the Control Board. Kerkorian let Lanni and MGM Mirage President and Chief Financial Officer Jim Murren handle the company's public appearance, but the multibillionaire financier was clearly the dominant personality in the room.

Murren said 30 million pages of documents were sent to regulators in support of the deal. The company also has 400 terrabytes of backup material stored in computers -- the equivalent of 640,000 computer disks. Neilander joked that the volumes of documents were responsible for the stock price of Visine rising dramatically.

Neilander praised MGM Mirage's financial strategies for the deal, noting that it has drawn banks that are new to the gaming industry. Among the deal's financiers are the Royal Bank of Scotland, a newcomer to gaming industry lending, and Barclays Bank.

Neilander noted that Pennsylvania gaming regulators were present to observe the meeting as that state develops its regulatory structure as one of the nation's newest gaming venues.

MGM Mirage executives said they will recommend the addition of Mandalay board member Rose McKinney-James, a lobbyist and former member of the state utility and transportation commission, to the company's 18-member board of directors. Overstreet praised the recommendation and said the Urban Chamber urged the company to maintain a "local presence" on the board.

archive