MGM Bid for Mandalay May Corner the Market

When gambler Don Scahill stepped off the monorail near the intersection of Las Vegas Boulevard and Tropicana Avenue on Wednesday, he was standing at the crossroads of what could be the biggest casino deal ever.

The visitor from Tampa, Fla., one of the 50,000 people who pass through the intersection each day, had left his room at the nearby Mandalay Bay Resort to do some sightseeing and perhaps play the slots at his favorite gambling haunt, the MGM Grand.

Scahill was demonstrating why MGM Mirage has bid $4.85 billion for Mandalay Resort Group. The acquisition would give MGM Mirage control of nearly half of the hotel rooms and casino space along the Las Vegas Strip -- and a near-stranglehold on the corner of Vegas and Tropicana.

“This is like a real game of Monopoly,” said one senior executive at a rival casino who asked not to be named. “You want to line up as many hotels as you can on the same side of the street and hope that when the visitor rolls the dice, they land on your property.”

The deadline for reaching a deal -- already extended once -- is 5 p.m. PDT today. A person familiar with the situation said late Thursday that negotiations between MGM and Mandalay had stalled as Mandalay pushed for more money.

Las Vegas-based MGM has offered $68 in cash for each share of Mandalay and would assume $2.8 billion in Mandalay debt.

It’s easy to see from the pedestrian bridge over Tropicana why MGM is making the play.

Northward, the looping roller coaster at MGM’s New York-New York Hotel & Casino sweeps past the faux Statue of Liberty that beckons tourists to the Gotham-themed resort. Directly across the street, a three-story version of the company’s trademark lion guards the entrance to the MGM Grand, the largest hotel in Las Vegas.

The concrete turrets of Mandalay’s Excalibur resort rise from the southwest corner of the intersection. One block south, the head of a giant sphinx peeks out from the front of Mandalay’s Egyptian-themed Luxor casino. In the background, the shimmering golden towers of the Mandalay Bay mark the southern boundary of MGM’s planned gambling empire.

All told, it adds up to more than 20,000 hotel rooms, nearly 11,000 slot machines, 542 gaming tables, two large arenas, dozens of restaurants and a 1.5-million-square-foot convention center.

“You have more hotel rooms at that intersection than you do in many entire states,” said David Schwartz, coordinator of the Gaming Studies Research Center at the University of Nevada, Las Vegas.

Only the aging Tropicana casino, taking up the southeast corner of the intersection, would remain outside MGM’s grasp.

Although this corner of the Strip is clearly the key to an MGM-Mandalay combination, the company also would own six casinos elsewhere in Las Vegas, as well as properties in Reno, Laughlin, Nev., and Detroit and gaming interests in Europe.

The venture would have combined revenue of more than $6.8 billion, surpassing Caesars Entertainment Inc. and Harrah’s Entertainment Inc. as the largest gaming company in the U.S.

The deal is the latest foray by billionaire financier Kirk Kerkorian, who controls more than 53% of MGM Mirage and has been in and out of several Las Vegas casinos during his long business career.

The 87-year-old Kerkorian also is at the center of a proposed $5-billion buyout of his Los Angeles-based Metro-Goldwyn-Mayer Inc. studio by Sony Corp. and several equity partners. MGM Mirage itself is the result of a $4.4-billion merger with Steven Wynn’s Mirage Resorts Inc. engineered by Kerkorian in March 2000.

Wall Street has applauded the proposed acquisition. Shares of both companies have risen since news of the merger talks became public June 4. MGM’s shares rose 8 cents to $47.60 on Thursday; Mandalay dipped 16 cents to $68.42. Both trade on the New York Stock Exchange.

Analyst Robin Farley of UBS Securities said the deal would make sense even at $72 a share. She estimated it could boost MGM’s 2005 earnings, now forecast to be about $2.40 a share, by 75 to 80 cents a share.

Acquiring Mandalay and its middle-brow casinos such as Circus Circus and Excalibur would allow MGM Mirage to expand beyond its current focus of catering to high-end gamblers at properties such as Bellagio and the Mirage, said analyst Patricia Wright of Fitch Ratings in New York.

Wright noted that Mandalay has been especially adept at booking its massive convention center.

That helps fill hotel rooms during slack midweek periods and drives rates higher at its nearby hotels.

“There would be huge leverage when you combine that with the MGM properties, especially the MGM Grand,” she said.

That very concentration of power could be a hurdle to getting a deal done.

“This is going to raise a red flag for the federal government,” said Bill Thompson, a professor of public administration at UNLV.

The Federal Trade Commission and the Nevada Gaming Control Board would have to approve the acquisition.

Rival gaming companies already are speculating that MGM Mirage might have to sell one of its major properties on the Strip to mollify regulators.

The company probably would shop Treasure Island, rivals say, because that casino is well north of the Vegas-Tropicana intersection.

Caesars Entertainment might be interested in acquiring Treasure Island or the adjacent Mirage resort because both are attractive properties located near other Caesars casinos, industry sources said.

The combined company also probably would shed Mandalay properties in declining markets such as Reno and Laughlin.

MGM Mirage and Mandalay declined to talk about the proposed transaction or any potential antitrust issues.

The implications of the heft that a combined MGM Mirage-Mandalay would wield wasn’t lost on Vegas visitors.

“Bigger isn’t always better,” said Scahill, the retired Tampa insurance salesman, who comes to town three times a year.

He recalled the free rooms, buffets, fancy dinners and, on one occasion, airline tickets that he had received compliments of the MGM Grand over the years. Recently, “they were cracking down on it, giving out less. So we tried out Mandalay Bay this time.” And if MGM gained control of the Mandalay, he said, comps for serious gamblers like himself could be even harder to come by.

Workers along the Strip are spooked too. As she served drinks to slot players Wednesday, a cocktail waitress at the MGM Grand worried that too much power would be concentrated in the hands of one company.

“Let’s say I lose my job,” she said.

“Where am I going to go? It’s a monopoly.”

Elbert Northern, a former casino dealer who now drives a cab, said reducing competition among the big gaming companies for employees and customers could sap Las Vegas’ vitality.

“All the marbles,” he said, “shouldn’t be in one pot.”