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Analysts Say More Casino Mergers on the Way
By Robert Macy   Associated Press
LAS VEGAS — Casino analysts predict more mergers are on the horizon for an industry adept at knowing when to hold 'em, when to fold 'em.

"There are definitely going to be more deals," Jason Ader, casino analyst for Bear, Stearns & Co. said after MGM Grand's $4.4 billion buyout of Mirage Resorts earlier this week.

"There are no new states approving gaming so the only way a company is going to grow is to acquire," Ader said.

The MGM Grand-Mirage deal was a classic Las Vegas high stakes showdown. Billionaire Kirk Kerkorian, who has built the world's largest hotel here three times and is one of the city's premier players, offered Mirage stockholders $17 a share last month. Steve Wynn, who parlayed a land deal with billionaire Howard Hughes into a $1 million profit that spawned his Mirage kingdom, rejected the offer of his longtime friend.

Insiders close to the negotiations say Kerkorian then stopped by Wynn's office in the glitzy Bellagio resort and upped the ante to $19. Wynn countered with $21 and the deal was done. The two sides worked out the details in the next four days before inking an agreement at dawn Monday.

The MGM buyout is just the latest venture making prophets out of those who predicted several years ago that a dozen-plus casino companies eventually would be swallowed up, leaving only a handful of giants.

Monday's deal reduces to six the number of major players in the gambling industry — MGM-Mirage, Park Place Entertainment Corp., Harrah's Entertainment, Inc., Mandalay Resort Group, Boyd Gaming Corp. and Station Casinos Inc.

At least one analyst thinks the number could fall further.

"Somewhere out there it would not surprise me if Mandalay is taken over," said Marvin Roffman, a casino analyst with Roffman Miller Associates. "It's just such a prime company. They own fabulous real estate and have fabulous properties."

Mandalay, formerly Circus Enterprises, reported disappointing fourth-quarter results last month, blaming the figures on a ho-hum holiday season.

Mandalay stock has been trading in the $14 range, down 30 percent for the year. Company officials did not return phone calls this week seeking comment.

Roffman agreed that Tuesday's passage of a constitutional amendment in California legalizing Indian casinos could spell trouble for Nevada.

A Bear, Stearns report last month noted 35 percent of Nevada's casino revenue is generated by Californians, and the spread of Indian gambling after Proposition 1A could affect the Nevada economy.

"Mandalay Resorts is very, very focused on Nevada, they don't have the geographical diversification of someone like Harrah's," Roffman said. "So if Nevada is impacted by Indian gaming in California, they would have a high percentage of their assets that could get hurt."

Roffman said he expected mergers in the industry to "continue unabated, and could even speed up as the California market blossoms."

Ader calls smaller casino companies such as Aztar, Isle of Capri, Argosy and Pinnacle "good targets" for the majors.

"Harrah's and Park Place have been aggressive acquirers of casino assets," Ader said. "The real question of smaller companies is do they continue to grow through acquisition or do they consolidate.

"The big companies will be looking at the small companies, and the small companies will be looking at other small companies," Ader said. "Everything is fair game at this point."

Harrah's is wrapping up a $425 million deal to acquire Players International Inc., with riverboat casinos in Lake Charles, La., St. Louis, and Metropolis, Ill.

Spokesman Gary Thompson said the company doesn't have any other deals pending, but that doesn't mean Harrah's is standing pat.

"We continue to look at any acquisitions that make strategic sense," Thompson said.

Park Place completed the $3 billion acquisition of the Caesars properties in December, giving the company an interest in 29 casinos worldwide. Future plans are unknown,

Roffman thinks the gambling industry is a perfect candidate for consolidation.

"Three characteristics about the casino industry never change," Roffman said. "It's very heavily regulated, it takes very deep pockets to be in the business, and it's very management intensive. To me, that's the perfect environment for more consolidation."

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