Historic acquisition final

By Liz Benston

Tuesday, April 26, 2005 | 10:59 a.m.

With its landmark $8 billion purchase of Mandalay Resort Group finalized as of Monday afternoon, MGM Mirage's top executive touted what he called the "world's leading gaming, entertainment and leisure company" and pledged to continue the company's history of reinvesting most of its profit back into Las Vegas.

"This company has put its money where its mouth is and is very committed to the future of Nevada," Chief Executive Terry Lanni said. "Most of our assets and employees are in Nevada."

With the deal, MGM Mirage becomes the world's largest gaming company, owning and operating 24 major properties -- 11 of them in Las Vegas -- with more than 70,000 employees. A juggernaut in a land of giants, the company -- already the largest private employer and taxpayer in the state -- will control about half of the Strip resort market, or most of the major resorts on the west side of Las Vegas Boulevard. The company swallowed three of the world's largest hotels, the 4,760-room Mandalay Bay, the 4,400-room Luxor and the 4,000-room Excalibur. Further north, the 3,740-room Circus Circus also joined the MGM Mirage family and the company assumed control over the 3,000-room Monte Carlo, a joint venture with Mandalay.

In a memo to employees Monday, Lanni said the transaction has "assembled the strongest management team in the history of the gaming industry and one of the most respected in any industry."

About 90 management-level workers at Mandalay Resort Group left the company in advance of the transaction's close, Lanni said in an interview. Most left voluntarily and the others received severance packages.

Unlike the merger between MGM Grand and Mirage Resorts that created the company in 2000, several Mandalay executives had notified MGM Mirage early on of their intent to leave the company, he said.

While the future of rank-and-file workers is less certain, Lanni pledged "unrivaled opportunities" for employees.

"Our dream combination of people and assets creates the best opportunity to serve an ever more diversified customer base," Lanni said in a statement.

Close to 2 p.m. Monday, Mandalay closed on the transfer of its interest in a Michigan casino and placed into an escrow account that company's half interest in an Illinois casino. Both were made to satisfy regulators in those states.

The recent appointment of three new regulators to the Illinois Gaming Board delayed action on the transfer, which ultimately pushed out the expected close of the deal from the end of March. The Detroit casino sale also had its complications, Lanni said in an interview.

More than 100 individuals own the remaining stake in MotorCity Casino and "were not always the best of friends" with Detroit businesswoman Marian Ilitch, who bought out Mandalay's interest, he said. MGM Mirage had originally contemplated selling its MGM Grand Detroit casino instead but the MotorCity sale was more expeditious because the purchaser already had a Michigan casino license, he said.

The transaction was initially met with "much skepticism" from analysts and competitors who believed the company would be forced to sell off assets, Lanni said.

But the Federal Trade Commission, along with state regulators, were unanimous in their opinion that no sales outside of Detroit were needed.

"I think it went very well," Lanni said of the deal's timing. "If anything I'd argue that we were 25 days off. In the scope of an $8.1 billion transaction, that's not too bad."

Also Monday, MGM Mirage announced several management changes at the resorts as a result of the transaction.

Named to new posts were:

Beau Rivage President Jeff Dahl will expand his responsibilities to include the Gold Strike Casino Resort in Tunica, Miss.

As previously reported, Bobby Baldwin, chief executive of the company's Mirage Resorts operating unit and John Redmond, chief executive of its MGM Grand Resorts unit, will remain with the company.

Presidents of the company's existing MGM Grand, Bellagio, Mirage, Treasure Island and Boardwalk casinos in Las Vegas will remain in their positions. Also continuing with the company are the presidents of the company's previously owned MGM Grand Detroit casino and the Beau Rivage resort in Biloxi, Miss. As previously reported, former Flamingo resort president Lorenzo Creighton moved across the Strip to become president of New York-New York.

Bill McBeath continues as president of Bellagio after assuming that post last month from Baldwin, who will also oversee the future CityCenter development at the Boardwalk. Scott Sibella continues as president of the Mirage, which he assumed from McBeath last month. Tom Mikulich continues as president of Treasure Island, where he was recently promoted from senior vice president of casino operations at the Mirage.

Executives at four Mandalay properties will continue with MGM Mirage. They include Curtis Jacks, general manager of the Colorado Belle in Laughlin; Frank Baldwin, general manager of Circus Circus-Reno; Donald Thrasher, general manager of Circus Circus-Las Vegas and Ben Speidel, vice president and general manager of the adjacent Slots-A-Fun casino. Jacks will expand his responsibilities to include the Edgewater casino, also in Laughlin.

Replacements have not yet been named for departing Mandalay executives at the Railroad Pass casino in Henderson and the Nevada Landing and Gold Strike casinos in Jean. Those properties will report directly to Redmond until permanent general managers are appointed, MGM Mirage said.

Joe Brunini, president of national marketing for MGM Grand Resorts, will expand his responsibilities to include Mandalay Bay, Luxor and Excalibur in addition to MGM Grand.

Other executives in the areas of information technology, marketing, public relations, human resources, retail and entertainment will expand their roles to oversee the Mandalay properties, the company said.

The purchase leaves MGM Mirage with about $13 billion in debt. That's about six times what the company's properties generate in operating cash flow per year.

As expected, ratings agency Standard & Poor's today lowered the company's bond ratings further into "junk bond" territory. The increased debt burden led to a revised rating of BB from BB+, though S&P said the acquisition "improves the overall business position" of the company by expanding its presence in Las Vegas.

Executives say the transaction will ultimately generate profit for shareholders and that the company expects to rapidly pay down debt.

In an interview last week, MGM Mirage President and Chief Financial Officer Jim Murren said the company's balance sheet is its strongest since 1999. During the first quarter, MGM Mirage spent $105 million to add new resort attractions yet also paid down $124 million in debt, he said.

The company will change its ticker symbol from "MGG" to "MGM" effective May 2.

MGM Mirage shares rose more than 4 percent Monday to $69.40 per share. Shares rose again, to $71.18 per share, in midmorning trading today.