MGM Grand Agrees to Buy Primadonna Resorts

MGM Grand Inc. agreed to buy Primadonna Resorts Inc., its partner in the New York-New York Hotel & Casino, for about $267.2 million in stock, the companies said Monday.

MGM Grand, controlled by billionaire Kirk Kerkorian, called the move a “significant step” toward its goal of turning itself into a gambling and entertainment giant in the rapidly consolidating casino industry. The company would also assume $335 million in debt.

The Las Vegas-based company said the deal would add to earnings immediately, without counting cost savings and other benefits once the properties are upgraded and managements streamlined.

“We paid exactly 5.9 times trailing cash flow, which history will say was a very attractive multiple for us to pay for a group of assets as attractive and high-quality as these,” said Jim Murren, MGM Grand’s chief financial officer.

“Plus from the standpoint of getting the other half of New York-New York, it’s a big plus for us to be controlling these two corners,” he said.

The New York-New York and MGM’s flagship MGM Grand, two of the largest casinos in Las Vegas, are across from each other on the Strip.

Las Vegas-based Primadonna owns a 50% stake in New York-New York. It also owns Whiskey Pete’s, Buffalo Bill’s and the Primm Valley Resort casinos in Nevada along the California border and two golf courses in California.

The deal could help bolster Primadonna’s border properties against the threat of competition from the possible proliferation of video slot machines on California Indian reservations, Bear Stearns analyst Jason Ader said.

The video slot machines were legalized in last week’s elections by California ballot initiative Proposition 5.

Under the deal, Primadonna’s stockholders will receive 0.33 share of MGM Grand’s stock for each share of Primadonna, totaling about 9.5 million shares.

The transaction is expected to close in the first quarter of 1999, subject to shareholder approval and regulatory conditions.

MGM shares rose 94 cents to close at $29.06 on the New York Stock Exchange; Primadonna shares lost 25 cents to close at $8.75 on Nasdaq.