MGM-Mirage merger may be delayed - Saturday 12th of March 2005

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 p>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.

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