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June 16, 2004, 4:32 p.m. EDT

Mandalay accepts MGM Mirage buyout

$7.9 billion deal forms world's largest gambling company

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By William Spain, CBS.MarketWatch.com

CHICAGO (CBS.MW) -- The Thing That Ate Las Vegas moved one step closer to its goal Wednesday morning as MGM Mirage's $7.9 billion takeover bid was approved by Mandalay Resort Group's board of directors.

Early Wednesday, the two companies announced that they had come to a "definitive merger agreement," under which MGM Mirage will pay $71 per share -- or $4.8 billion -- in cash for Mandalay . The deal also includes $600 million of convertible debentures and the assumption of approximately $2.5 billion in Mandalay debt.

Shares of MGM Mirage closed down 1.3 percent to $48.88 while Mandalay slipped 8 cents to $67.80.

The $71 per share price represents about a 30 percent premium to Mandalay's closing price June 3, the day that MGM Mirage offered $68 per share. Mandalay rejected that bid late Friday, citing risks in completing the merger.

MGM Mirage said it expects the deal to immediately increase its earnings per share. Mandalay stockholders still have to vote on the transaction, which is likely to face scrutiny from federal and state antitrust and industry regulators. The combined entity will control about half the rooms on the Las Vegas Strip and own and operate 28 casinos from Nevada to Mississippi and the suburbs of Chicago.

The acquisition is expected to close in the first quarter of 2005, which one analyst termed "more aggressive than we would have expected," considering some of the regulatory hurdles.

"We understand there is a $160 million breakup fee for the transaction, but we do not know if this is dependent on any specific timeline," wrote Deutsche Bank's Marc Falcone in a note to investors Wednesday. "While we believe there are strong arguments for the regulators and the [Federal Trade Commission], there is no certainty of the outcome of this process."

However, MGM Mirage President Jim Murren told CBS MarketWatch Wednesday that the media and Wall Street focus on regulatory concerns was "a distraction, a sideshow to what was going on" in the negotiations and said regulatory risks had been weighed for quite some time.

"We have been looking at Mandalay on and off for couple of years and we have phenomenal antitrust attorneys," he asserted, adding that while the combined company will have to sell one of its casinos in Detroit, he does not anticipate divesting any of its prime Las Vegas Strip hotel casinos. See full story.

William Spain is a reporter for CBS.MarketWatch.com in Chicago.

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