Mandalay's Growth No Mirage

Industry ponders the merger of Mandalay and MGM Mirage

By Margo McCall -- Tradeshow Week, 6/28/2004

Mandalay Resort Group was growing plenty fast on its own. But with MGM Mirage's $7.9-billion cash takeover offer, Mandalay — owner of one of the country's largest private convention centers — is slated to become part of a chain that controls hundreds of thousands of hotel rooms in Las Vegas alone.

Together, Mandalay Resort Group and MGM Mirage will own and operate 28 casinos and resorts, including a dozen of the Las Vegas Strip's most recognized names. Employing a staff of 70,000, the companies' combined annual revenue of $6.5 billion will also put them ahead of competitors Caesars Entertainment and Harrah's Entertainment.

The crown jewel of the collection is the million square foot Mandalay Bay Convention Center that opened a year and a half ago. Mandalay Resort Group's formula for success has been to use meeting and exhibit facilities to help fill midweek rooms at its four Strip resorts. Just one day before MGM Mirage made its initial purchase offer of $68 per share, Mandalay Resort Group reported that its first-quarter net income had nearly doubled over the previous year.

"Mandalay has done a tremendous job in the business community with their convention center. Obviously it's a major growth factor in Las Vegas," said Jim Murren, MGM Mirage president and CFO, during the conference call announcing the boards' approval of the deal. He added that the convention center will be "a great access point to further penetrate the convention market," opening more hotel rooms to conventioneers and allowing for even larger tradeshows.

In the 18 months it's been open, the convention center has attracted a number of high-profile shows, including the Promotional Products Assn.'s PPAI Expo, the SnowSports Industries America's SIA Trade Show, the American Rental Assn.'s The Rental Show and MediaLive Intl.'s NetWorld+Interop.

Observers say it's too early to gauge the merger's effect on the tradeshow industry, since antitrust regulators could order divestitures of some casinos or even the convention center before the $71-per-share purchase's expected close in the first quarter of 2005.

One initial area of worry, however, is that hotel room rates would rise. "It will give them a lot of pricing power across all tiers," said Jan Freitag, director of Smith Travel Research. "In general, rates have been going up across the board, across the United States."

However, Doug Shifflit, president and CEO of lodging consultant D.K. Shifflit & Associates, doesn't foresee drastic room-rate hikes as a result of the organization's increased clout. "Group business is between cities as well. They might be able to take rates up slightly, but my suspicion is that they can't take the rates up very far or people would go to other cities," he said.

Shifflit said the merger should create operating efficiencies and give the new entity increased buying power. Beyond that, it could improve guests' stays. "They could enhance the guest experience by giving customers deals at multiple hotels and access to shows at multiple hotels."

Allison Box, vice president of association services for the American Rental Assn., said her group has been assured that the merger won't have any effect on The Rental Show, which is slated for Mandalay Bay Feb. 14–17, 2005, as well as in 2008 and 2011. Still, she wonders about the merger's long-term effect. "The one thing that does concern me is the competition factor," she said. "What will it be like trying to negotiate if it's just one company?"

Chris Meyer, director of convention center sales for the Las Vegas Convention & Visitors Authority, pointed out that being privately run, Mandalay Bay has more pricing flexibility than the publicly owned and operated Las Vegas Convention Center. With all the real estate owned by the two companies, an expansion wouldn't be unexpected, he said.

Another worry is that key convention sales staff could be targeted for post-merger layoff. Darel Cook, director of expositions and meetings for PPAI, said he's been following the merger very closely. "We have a very good relationship with both of the groups. You'd love to think they would keep those experienced people because the convention center was the biggest reason for the acquisition," he said.

PPAI has a contract for Mandalay Bay exhibit space that runs through 2007. But the organization must negotiate its room-block rates every year. Cook said he hopes the merger will result in better customer service and a wider variety of hotel room prices.

Pointing out that MGM shied away from massive layoffs after acquiring the Mirage in May 2000, J. Terrence Lanni, MGM Mirage chairman and CEO, suggested that the company would take the same approach with this acquisition. "Mandalay employees at all levels are talented and will be a tremendous asset," he said.

Mandalay Resort Group's upper management is set to stay on only until the merger closes. "Our intent is to effect integration. We have no higher career objective than achieving that," Glenn Schaeffer, president and CFO, said during the conference call.

Murren said MGM Mirage is also concerned about keeping its customers. "We've been down this road before. We have a track record of putting companies together efficiently, effectively and smoothly to the benefit of customers, employees and shareholders. We're up to the challenge to do that again," he said.

Schaeffer said Mandalay employees generally back the merger. "MGM Mirage has an outstanding reputation in the community as an employer. I think our people are pretty upbeat about this transaction," he said.

Las Vegas in 2003 hosted 38 Tradeshow Week 200 shows, 11 more than Chicago, its closest competitor. Besides the Mandalay Bay Convention Center, Las Vegas is home to the Las Vegas Convention Center, with 1.9 million sq. ft. of exhibit space; and the privately owned Sands Expo & Convention Center/Venetian Resort Hotel, which offers 1 million sq. feet of exhibit space. In addition, a number of private resorts — including the MGM Grand Hotel and the Mirage Casino-Hotel — offer exhibit and meeting space.

The merger's focus on the Mandalay Bay Convention Center should only further highlight the city's importance as a tradeshow destination, said Meyer. "From a tradeshow and convention aspect, I think this is going to be hugely positive," he said.

Lanni agreed. "We're going after conventions that are in Chicago right now and in L.A. and in Geneva and London. Las Vegas is emerging in its rightful place as a preeminent convention city, and the combination helps that."