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
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
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
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
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
"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)
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,"
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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