Saturday, June 19, 2004
Copyright © Las Vegas Review-Journal

Shares in gaming companies take sharply different routes

IGT worker Tom Fenicle adjusts a coinless slot at IGT offices. One analyst says MGM Mirage is likely to hasten the conversion to coinless slots at Mandalay casinos. Photo by John Gurzinski/REVIEW-JOURNAL FILES.

Gaming stocks went on wildly divergent paths following the announcement of buyout talks between MGM Mirage and Mandalay Resort Group.

Over the 10 trading days since MGM Mirage announced the negotiations, the Dow Jones Casino Index slipped 1.5 percent. It closed Friday at 409.50, compared with the Standard and Poor's 500, which also lost 1.5 percent, closing Friday at 1,135.92.

Analysts said the merger dominated the gaming landscape since it became public with investors now trying to handicap any potential regulatory concerns that could alter the deal.

While the industry group as a whole slipped slightly, slot maker stocks fared far worse. Alliance Gaming closed Friday at $15.79, down 24 percent over the 10-day period, WMS Industries closed at $26.15, down 11 percent, and International Game Technology closed at $35.88, down 10 percent.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said industry leader IGT and the other manufacturers dropped on panic selling and concerns there was no momentum to expand gaming in California or legalize it in new jurisdictions such as Pennsylvania.

However, other analysts, who asked not to be named, said some of the panic was caused by fears the MGM Mirage-Mandalay merger would put enough power in the hands of the emerging company to depress slot-machine prices.

Eric Hausler, gaming analyst for Susquehanna Financial Group, disagreed, explaining that MGM Mirage has been a leader in the conversion to coinless slot machines and is likely to accelerate the conversion at Mandalay's casinos.

He said investors in slot-making companies are simply getting "very skittish about proliferation. As rumors heat up over the next two weeks, you can expect a lot of volatility, especially with the uncertainty over whether the Pennsylvania Legislature will legalize slots at race tracks.

In addition, Greff said the market was disappointed by reports the United Kingdom government's Department for Culture, Media and Sports would likely fast track legislation to reform gaming laws but limit opportunities for American operators.

"Indications are the market will be smaller, at least in the near term, than some investors had expected," he said.

The industry leaders on news of the merger were Mandalay, up 24 percent at its Friday close of $68.45, and MGM Mirage, which closed Friday at $47.55, up 5 percent over the period.

Shares in other operators all increased between 1 percent and 5 percent.

Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm, said the market trends were directly attributable to the proposed acquisition (of Mandalay by MGM Mirage).

Other companies basked in the market glow caused by the merger rumors, the economic recovery and broad market conditions, analysts agreed.

Gordon said all gaming industry indicators have been rising sharply, especially room rates and visitor counts, helping drive stock prices upward.

On balance, gaming industry fundamentals remain strong, Greff said.

"We'll see Atlantic City accelerate with the first anniversary of the Borgata and the improving economy will help regional markets and tribal casinos," he said.

Gordon agreed, saying all indicators suggest increased strength in the next quarter, but tougher comparisons toward the end of the year.

With no announcements scheduled in the week ahead, however, analysts said gaming industry investors will likely focus in he short-run on whether or not future deals are likely or whether the MGM Mirage-Mandalay buyout will be a one-time event.