Mandalay Says "I Do"

Look, I love Vegas as much as the next guy. In fact, I can't wait to get back and sidle up to a poker table, or maybe try Lakes Entertainment's (Nasdaq: LACO  ) World Poker Tour casino game. But let's be honest, Vegas isn't exactly the land of milk and honey. Heck, the town's motto -- "What happens here, stays here" -- perfectly describes its penchant for drive-through weddings and equally rapid divorces. Nothing seems to last in Vegas. Could that be about to change?

Tuesday, the board of Mandalay Resort Group (NYSE: MBG  ) accepted MGM Mirage's (NYSE: MGG  ) $7.9 billion merger proposal. MGM will pay $71 per stub in cash for Mandalay, including $4.8 billion for Mandalay shares, $600 million for outstanding Mandalay convertible bonds, and $2.5 billion to cover outstanding debt. Together, the couple would be the largest casino operator in the world, with 28 properties in five states.

You can't really blame MGM for going to the well to hook up with Mandalay, for, as fellow Fool Jeff Hwang recently pointed out, it is the sex kitten among the casino operators on the Vegas Strip. But can this marriage last? Well, unlike most shotgun weddings in the Nevada desert, these two actually dated before heading to the altar. MGM and Mandalay each own a 50% stake in the Monte Carlo resort, which recently helped put some sizzle into Mandalay's operating results.

But not all is well for the happy couple. Should the two be joined as expected, the result could be a $13 billion mountain of debt, almost twice that of the combined entity's annual projected revenue of $6.6 billion. As W.D. Crotty has reported, that makes The Donald's ailing Trump Hotels (NYSE: DJT  ) look miserly.

Indeed, as Trump's experience proves, not much good can come from a debt load that heavy. So for MGM and Mandalay, the honeymoon could be very short. And their offspring -- new properties to be created on undeveloped land they own on the Strip -- may be forced to accept unattractive terms to finance future building.

I don't think there's much question that the MGM-Mandalay marriage will be consummated, resulting in a few very beautiful children who will bring more glitz and glamour to the Strip. But will this pairing make money for you, the investor? Don't bet on it. You'd be better off looking into some of these deals, uncovered by our Foolish analysts:

  • Alliance Gaming's (NYSE: AGI  ) misfortune could be a break for you.
  • Ameristar Casinos (Nasdaq: ASCA  ) turns pennies into profits.
  • Harrah's Entertainment (NYSE: HET  ) rakes in the dough.

Heading to Vegas for vacation this summer? Make sure you get clued in to the best deals on the Best Travel Spots/Tips discussion board. And before you put any money in play, check in with the Gamblin' Fools, or the gang at On Tilt, if poker is your game. Not yet registered to enjoy our Foolish community? No sweat, it's easy to give us a try.

Fool contributorTim Beyersconsiders Vegas Vacation a classic and Chevy Chase a genius. He owns no stake in any of the companies mentioned, and you can view his Fool profilehere.


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