06/17/2004 11:00PM

Half the Strip now under one banner


Normally the difference between $68 and $71 is $3. Not in Las Vegas. Not this past week. Not for two mega-giants of gaming. The difference between the $68 per share offered to buy out Mandalay Resort Group by MGM Mirage and the $71 per share to close the biggest buyout of a gaming company in history was a mere $250 million. The total deal was worth $7.9 billion.

But, then, what's a quarter-billion dollars among corporate friends?

MGM Mirage tendered the buyout offer after closed-door negotiations with the Mandalay gaming giant at $68 per share on June 4. Mandalay then rejected the deal after a board meeting on June 11. By June 14, the $71-per-share offer was ratified by both the MGM Mirage and Mandalay boards of directors, leading to the biggest gaming merger in the world. Once the deal closes - projected to be by the first quarter of next year - following approvals by government and regulatory agencies, the new combine will be the largest gaming company in the world.

Then MGM Mirage, which has indicated it will not change the Mandalay Bay name on that company's group of properties, will own or operate 28 gaming properties spanning Nevada, Mississippi, Illinois, Michigan, and New Jersey. The new company will employ more than 70,000 people throughout its holdings and will control more than half of the 72,000-room inventory on the Strip. The combined company will have 36,702 rooms along the most famous boulevard in gaming.

This is the second time the MGM lion has swallowed big prey. In 2000, MGM Grand merged with the Mirage Resorts Inc. to create the MGM Mirage corporation.

Although the basic idea of buyouts - "if you can afford it, just buy your competition" - may apply to some extent, it was the future positioning of the MGM Mirage company that forged the Mandalay Resort acquisition. Although MGM Mirage will add the Mandalay Bay, Luxor, Excalibur, and Circus Circus to its Bellagio, the Mirage, Treasure Island, and MGM Grand portfolio of hotel complexes, it was the land holdings of Mandalay Resorts that motivated MGM Mirage officials to buy.

Committed to its belief in the strength of this gaming capital, MGM Mirage will now shift its course to expanding the Las Vegas landscape up and down the Strip. MGM Mirage's president and chief financial officer, Jim Murren, said the company is serious about moving quickly to develop four prime locations of undeveloped land that are among the Mandalay Resorts holdings.

MGM Mirage's continued talks about redeveloping its Boardwalk casino should lead to expanding another resort on the 55 or so acres between the Bellagio and Monte Carlo hotels. This would give MGM Mirage almost all the Strip-front properties on the west side of the boulevard, from New York New York at the corner of Tropicana Avenue to the Bellagio at the corner of Flamingo Road.

With the string of Mandalay hotels, the properties will span beyond the southwest corner of Tropicana to a 22-acre parcel on the corner at Russell Road. In addition, on the other side of the street, development on 15 acres across from the Luxor would result in a mammoth skyline of MGM Mirage hotels along the south Strip corridor.

And, it seems they will have plenty of cash to do the job. Many industry analysts, who are still wrestling with the gargantuan figures, estimate that the new combined company could bring in anywhere from $750 million to $2 billion in annual cash flow. The future seems as bright as the lights on their collective Strip marquees.