Mandalay Shares Jump 17% as Wall St. Speculates on Buyout
Shares of Mandalay Resort Group surged 17% on Monday as Wall Street contemplated whether MGM Mirage would be able to pull off a multibillion-dollar buyout that would give it control of about half the hotel rooms on the Las Vegas Strip.
MGM Mirage surprised the casino industry by offering $4.85 billion in cash and the assumption of $2.8 billion in Mandalay debt late Friday after the markets closed.
Few had expected the blockbuster offer, even though MGM Mirage has been aggressively seeking acquisitions, especially in Britain.
MGM Mirage offered $68 a share, but analysts said negotiations and a possible bidding war could drive the final price above $75 to $80 a share.
In trading Monday, Mandalay shares closed up $9.96 at $70.23 , and MGM Mirage shares dropped $1.19 to $44.84, both on the New York Stock Exchange.
MGM Mirage would hold sway over Las Vegas if it was successful, Deutsche Bank gambling analyst Andrew Zarnett said Monday.
As the world’s largest casino company, MGM Mirage would dominate the most lucrative gambling market in the world, with 10 hotel-casinos along the famous five-mile stretch of Las Vegas Boulevard, including the immensely profitable Bellagio and Mandalay Bay resorts. It also would control about 40% of the slot machines and 44% of the gambling tables.
Mandalay said it was evaluating the $7.65-billion offer, which was characterized as “friendly but unsolicited” by a source close to the talks who spoke on condition of anonymity. The company has hired Merrill Lynch & Co. and the New York law firm Cravath, Swaine & Moore as financial and legal advisors for the negotiations, which began last week.
In a regulatory filing Monday, MGM Mirage said it was forced to reveal the offer after Mandalay’s stock soared 10% on Friday to close at $60.27.
“We are concerned that the trading activity in Mandalay’s stock strongly suggests that there has been a leak of the negotiations,” MGM Mirage said. “Under applicable securities laws, Mandalay and we have a legal obligation to disclose such negotiations if there has been a leak.”
It’s not clear whether merger rumors prompted the run-up in prices. Mandalay announced record first-quarter earnings late Thursday thanks to its new tower at Mandalay Bay called THEhotel and a convention center that opened in 2003.
The proposed deal would allow MGM Mirage to grab more than 36,000 of the 73,000 rooms on the Strip. With combined annual revenue of more than $6 billion, the merged company would leapfrog rivals Caesars Entertainment Inc. and Harrah’s Entertainment Inc.
