MGM Grand Makes Bid for Mirage

By JAMES F. PELTZ

Feb. 24, 2000 12 AM PT

TIMES STAFF WRITER

MGM Grand Inc. launched a $3.4-billion bid to buy Mirage Resorts Inc. in a surprise move Wednesday that pits two of Las Vegas’ most powerful gaming figures in a potentially hostile fight: Kirk Kerkorian, the Beverly Hills billionaire who is MGM Grand’s controlling stockholder, and Steve Wynn, Mirage’s flamboyant chairman.

MGM Grand said its unsolicited offer was friendly and that Wynn could be one of its directors, but Wall Street instantly concluded that Wynn and the rest of Mirage’s board would probably reject the overture.

However, Wynn is under pressure to boost the price of Mirage’s sagging stock, and the potential merger also would create a formidable U.S. gaming leader, particularly on the Las Vegas Strip.

That’s where MGM Grand already owns a casino-hotel by that name and the glitzy New York-New York facility. Mirage owns the Mirage, Treasure Island, Golden Nugget and the opulent Bellagio, a $1.6-billion, 3,000-room hotel-casino that opened in Las Vegas in late 1998. Both companies also operate casinos in other states.

The offer comes at an uncertain time for Las Vegas and for the big gaming operators. The opening of the Bellagio and several other extravagant hotel-casinos in the last 18 months did as intended: They swelled the number of visitors to the city last year, propelling the gaming companies’ stocks sharply higher.

But the excitement and prospects for even fatter profits quickly waned as 2000 arrived and investors began fearing that 1999’s results would be hard to top, sending the stocks south. And among the worst hit was Mirage’s stock, whose low price makes the company a more tempting takeover target.

In a letter to Wynn, MGM Grand Chairman J. Terrence Lanni offered $17 of cash, or $7 cash and $10 of MGM Grand stock, for each Mirage share, which he noted was 56% higher than Mirage’s closing price Tuesday.

MGM Grand also would probably assume Mirage’s $2.1 billion in long-term debt, giving the deal a total value of $5.5 billion. But Mirage’s reaction was cool; in a terse statement, it said it would weigh the offer “in the near future.”

“Steve Wynn is a pretty independent person, and I’m sure he does not want to merge or sell his company,” said analyst Dennis Forst of McDonald & Co. Securities in Los Angeles. And even if Wynn were inclined to merge, it’s very likely Mirage’s board would find $17 a share too low, he added.

Indeed, that skepticism is one reason Mirage’s stock finished well below $17 after the announcement, observers said. Mirage gained $3.63 a share, to close at $14.50, while MGM Grand’s stock rose $1.44, to close at $41.81 a share, both in New York Stock Exchange composite trading.

Another reason Mirage’s stock didn’t climb higher is that even if Mirage’s board accepted the offer, it probably would take a year or more for the merger to clear regulatory hurdles, including getting approval from gaming authorities in Nevada, New Jersey and other states where the companies have properties, analysts said.

MGM Grand President James Murren said in an interview that “our intentions are friendly,” but he declined to speculate on what MGM Grand would do if rebuffed. “We’ll take this day by day,” he said.

Mirage is the larger of the two companies, with revenue last year of $2.7 billion. MGM Grand’s 1999 revenue was $1.4 billion.

MGM Grand’s merger offer was classic Kerkorian, who controls 63% of MGM Grand’s stock and has an overall net worth estimated at $7 billion by Forbes magazine. A reclusive, longtime deal maker, Kerkorian, 82, is known as a steely negotiator who isn’t afraid to make audacious takeover bids that, even if they fail, usually make him handsome profits.

That’s what happened in 1995, when Kerkorian brashly launched a takeover fight for Chrysler Corp. The two sides ultimately settled, but in the meantime, Kerkorian’s 13.6% stake in Chrysler doubled in value to nearly $3 billion.

In this case, Lanni said neither Kerkorian nor MGM Grand owns any Mirage stock. But Lanni is a respected gaming executive, and analysts noted that if the deal goes through, Kerkorian and MGM Grand would benefit from slashing redundant overhead costs among the companies, and from removing a competitor known for attracting many of Las Vegas’ heaviest gamblers.

“MGM would be gaining access to the highest of the highest [gamblers] with Mirage,” said Anthony Curtis, publisher of the Las Vegas Advisor, a consumer newsletter.

And Kerkorian is one person in Las Vegas who wouldn’t be intimidated to, well, roll the dice and make a merger bid for Mirage, despite Wynn’s enormous influence and power in the city and in the gaming industry overall.

“Steve Wynn is the most visible of the casino executives; he’s the guy, in Vegas he’s the guy,” Curtis said. “For somebody to be coming after his kingdom is very big news.”

Wynn, though, is feeling heat to fix the slump besetting Mirage and its stock, a slump that’s also costing Wynn personally because he owns nearly 24 million shares, or nearly 12%, of Mirage.

Despite the banner year for gaming companies in 1999, Mirage’s stock spent much of the year plunging from $25 a share to the low teens as Mirage posted results that fell short or only matched Wall Street’s expectations.

Mirage’s performance suffered in good part because it spent heavily on Bellagio and another new hotel-casino, Beau Rivage in Mississippi, although Bellagio has performed well and has helped bring more visitors to the strip, analysts said.

Should Kerkorian decide to wage a hostile fight with Mirage, he’ll face several challenges. Besides needing approval from gaming authorities, MGM Grand would have to get past Mirage’s incorporation in Nevada, which has stringent anti-takeover provisions.

“Hostile takeovers are very difficult in this industry, especially when you have so many regulatory hurdles to climb,” said Steven Altman, an analyst with Duff & Phelps Credit Rating Co. in Chicago.

Still, MGM Grand’s public offer could swell “shareholder pressure on Steve Wynn to do something” to get Mirage’s stock price higher, including going to the negotiating table with Kerkorian, Altman said.

Times researcher Nona Yates contributed to this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Mirage Resorts

The company owns high-end hotel-casinos such as the Bellagio, Mirage, Treasure Island and Golden Nugget, all in Las Vegas, and Beau Rivage in Mississippi, among others.

* Headquarters: Las Vegas

* Chairman: Steve Wynn

* Employees: 25,720

* 1999 operating earnings:

$168.5 million

* 1999 operating EPS: $0.84

* 2000 estimated EPS: $0.97

* 1999 sales: $2.65 billion

* Shares outstanding: 193 million

* Market capitalization:

$2.8 billion

Mirage stock