Wednesday, March 23, 2005
Copyright © Las Vegas Review-Journal

MGM-Mirage merger may be delayed

The surprise appointment last week of three new members to the Illinois Gaming Board could delay the closing of MGM Mirage's $7.9 billion buyout of Mandalay Resort Group for up to three months, the company is expected to announce this morning.

A source close to MGM Mirage said the two gaming companies will issue a joint statement agreeing to a delay in completing the transaction, which had been expected to close by the end of March. The buyout agreement contains a 90-day extension clause.

Some insiders estimated Tuesday that waiting on a decision by Illinois regulators could delay the transaction for several weeks, perhaps as long as two months.

"Our new board members may not even know that MGM has an application with us," said Jeannette Tamayo, interim administrator for the Illinois Gaming Board. Still, the delay because of Illinois should not hinder the entire transaction.

Last month MGM Mirage executives told Nevada gaming regulators that financing for the buyout was in place, which would include purchase of $4.8 billion of Mandalay Resort Group stock at $71 a share and assumption of almost $3 billion in company debt.

Nevada Gaming Control Board Chairman Dennis Neilander said regulators approved the MGM Mirage-Mandalay transaction with six months to complete the merger.

Deutsche Bank gaming analyst Marc Falcone also said a delay in the merger shouldn't upset investors. "I don't think there will be much of a concern," Falcone said.

At issue is the Grand Victoria riverboat casino in Elgin, located about 40 miles northwest of Chicago, in which Mandalay has a 50 percent ownership.

Hyatt owns the other half of the property, which includes 36,000 square feet of casino space for dockside gaming, where wagering is conducted on the riverboat over water without cruising.

MGM Mirage had planned to place the ownership of the riverboat into an escrow account with a trustee to oversee the holdings because the Illinois gaming board had only two of five members since last August because of resignations and retirements.

By law, the gaming board could not render any rulings because the panel was one member short of a quorum.

Placing the casino into an escrow trust would allow the merger, which has already been approved by gaming regulators from Nevada and Mississippi and the Federal Trade Commission, to move forward within MGM Mirage's previously announced target of the end of the first quarter. Once completed, MGM Mirage would encompass 28 casinos in five states with 75,000 employees, 95 percent of whom are based in Nevada.

However, when Illinois Gov. Rod Blagojevich appointed three new gaming board members, who took office Monday, the plan changed.

Blagojevich, who had been heavily criticized by gaming industry representatives and political leaders for leaving the regulatory body in limbo for eight months, also appointed two other gaming board panelists who will be seated in July when the terms of the remaining two members expire.

Of the five appointees, three have been described as anti-gaming or have made comments stating a philosophical opposition to gambling.

An Illinois gaming attorney who is familiar with the merger activities, said, by law, the gaming board must rule on the entire MGM Mirage-Mandalay transaction, which would supersede the plan to move the riverboat into an escrow trust.

The attorney, who asked not to be named, said that while MGM representatives may have kept the Illinois regulatory staff apprised of the merger proceedings, it will still take the new Illinois board several meetings to become familiar with the transaction.

The board's staff may have enough information, knowledge and backup material to offer an opinion to the board; however, the merger's complexity could delay the board's action, the attorney said.

"There's no way this is going to happen before the end of March," the attorney said.

Tamayo said the reconstituted Illinois board will meet in a closed executive session Thursday to discuss items that have been awaiting action.

Because the talks will be in private, she was unsure what information could be disclosed following the meeting.

"They need to see what items are in front of them," Tamayo said. "The board has a fair amount of license renewals and other applications to be acted upon. I'm not sure what they are going to do with (the MGM Mirage-Mandalay merger) issue."

She couldn't comment if Illinois gaming staff was familiar with MGM Mirage's plans to move the riverboat into an escrow trust.

"What we've told gaming analysts is that MGM representatives were confident they have a solution where the Illinois property can be extricated from the transaction," Tamayo said.

Shares of MGM Mirage closed at $75.26, down 62 cents or 0.82 percent. Shares of Mandalay Resort Group closed at $70.76, down 3 cents or 0.04 percent.