[Editor's Note: Since this is an epic tale of an epic buyout, we're presenting it as a two-part answer. This is Part One.]
In 1999 and early 2000, it was not a good time to be a Mirage Resorts stockholder. The company's share price had fallen off a cliff in early 1999. CEO Steve Wynn was attempting something he'd never done before and hasn’t done since: trying to build two megaresorts simultaneously. Bellagio launched quite successfully in Las Vegeas, but it was a different story in Biloxi.
There, Beau Rivage got off to a rocky start; for example, the company's pretentious ad campaign (narrated by Elizabeth Taylor in an affected Southern accent) set local teeth on edge.
Mirage Resorts’ shares that traded at $26.38 in May 1999 were down to $10.88 by the following Feb. 22. The company was "plagued," correspondent Dave Berns wrote in Casino Executive Magazine "by competition from three new Strip resorts, cannibalization of business by Mirage's own Strip properties, the disappointment of its year-old Beau Rivage ... and investor anger toward what some view as Wynn's arrogant attitude toward analysts and shareholders."
In subsequent years, Wynn has been at considerable pains to spin the outcome of what was dubbed "The 12-Day War" as an amicable voluntary sellout to MGM Grand, as the company was then known. Perception at the time, however, was considerably different.
"This capitulation … is literally of record proportion," hedge-fund manager Robert Chapman told Berns. "Nobody in the arbitrage community expected him to roll over this fast. ... I think the guy's had enough."
The stage for an MGM buyout was set in September 1999, when Kirk Kerkorian bought a stake in Mirage, then trading in the low teens. Now, Kerkorian didn't make a move like that without a lot of people noticing. He bought less than five percent of Mirage stock, "for investment purposes only," although the company's $6 billion worth of assets then had an enterprise value of only $4.7 billion.
Saying this was "the same math Kerkorian is probably doing," stock analyst Jason Ader opined, "he's not one to sit around if the stock price is languishing. That's not how he became a billionaire."
For his part, while Wynn characterized the transaction as amicable (he and Kerkorian were tennis partners), he also promised to thwart any takeover of the company. "You can't buy Mirage," he told reporter Christina Binkley of the Wall Street Journal, a tune he later changed.
Kerkorian's flier into Mirage stock was short-lived. Saying he'd been made to feel "very unwelcome" at Wynn's company, Kerkorian sold his position in November, but not before making $20 million on the transaction. The mercurial billionaire had also offered Wynn the MGM Grand on two occasions following the opening of Bellagio, but Wynn demurred.
Then, on Feb. 23, 2000, Kerkorian struck.
[Tune in tomorrow for the exciting conclusion to "The Rich Get Richer."]
