Steve Marcus  /  Reuters file
Representatives from Mandalay Resort Group said they would carefully evaluate MGM Mirage's unsolicited takeover offer.
updated 6/7/2004 2:19:12 PM ET 2004-06-07T18:19:12

MGM Mirage has made an unsolicited $4.85 billion bid for Las Vegas rival Mandalay Resort Group in a move that would create the largest U.S. casino group.

The bid, valued at $7.65 billion including $2.8 billion of debt, was made late on Friday after talks between MGM Mirage and Mandalay. Mandalay said it would "carefully evaluate the proposal" and is expected to respond in the next couple of days.

MGM Mirage wholly owns six casinos in Las Vegas, including the Bellagio, MGM Grand and Mirage, while Mandalay has four: the Mandalay Bay, Luxor, Excalibur and Circus Circus.

MGM Mirage, controlled by Kirk Kerkorian, the billionaire financier, is offering $68 a share in cash; a 13 percent premium to Mandalay's closing price on Friday. Mandalay's shares jumped more than 10 percent on Friday after posting strong first quarter figures.

A takeover of Mandalay would be a significant move for MGM Mirage, which had a market capitalisation of $6.5 billion at Friday's close. Both companies' balance sheets are already highly leveraged — MGM Mirage has about $3 billion of long-term debt — and MGM Mirage has an ambitious investment programme in the UK where it hopes to take advantage of the imminent deregulation of the casino market.

High debt leverage is standard in the gaming industry. Both companies have strong cashflow.

MGM Mirage has said it is interested in developing a casino in Macau, southern China. It has been negotiating a casino deal with Pansy Ho, daughter of Stanley Ho, the tycoon who enjoyed a monopoly on the former Portuguese colony's gambling industry for four decades until 2001.

Mandalay Resort Group also reportedly applied for a Macau gambling license with Park Place Entertainment, through a company called MP Entertainment.

MGM Mirage did not say how it would finance the offer. It is likely it would raise some money from disposals

A combined group would create the clear leader in U.S. casinos, ahead of Caesars Entertainment and Harrah's Entertainment. The proposed takeover may face close scrutiny by antitrust authorities.

Copyright The Financial Times Ltd. All rights reserved.


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