Casino operator MGM Mirage (MGG) on Monday said it raised its offer to buy Mandalay Resort Group (MBG) to $71 a share from $68 a share, hoping to seal a deal that would build the world's largest casino empire.

The offer, which includes $600 million in convertible debentures and the assumption of about $2.5 billion in debt in addition to the $71 a share in cash, would immediately add to earnings per share, MGM said.

Mandalay on Friday had rejected MGM's $68 a share offer. The prior offer had also included the assumption of $2.8 billion in debt. In rejecting the bid, Mandalay had said MGM wanted it to shoulder the risk that regulators would not approve the deal.

A deal would combine MGM's high-end Las Vegas casinos like Bellagio (search) and MGM Grand with lower-tier Mandalay holdings such as Excalibur and Luxor. It would create a company that would play in every sector of the gambling market, a dominance that might require divestitures to convince regulators to pass the deal.

Marc Falcone, an analyst at Deutsche Bank, said it would be a good deal for the casino industry. "It will give pricing power back to the market, because the combined company will be able to lead the pricing," he said.

But Mandalay shares fell 47 cents at $67.95 on the New York Stock Exchange (search), and MGM Mirage shares fell 71 cents to $46.89.

"I think there is a bit of uncertainty among investors," Falcone said. "They're probably hoping there isn't any risk that the positive discussions over the weekend will break down."

"Once there is a definite agreement signed by the board of directors of both companies, I expect both stocks to go up," Falcone said. "And I expect the deal to be signed very shortly."

In a statement, Mandalay said the terms of the revised bid would "offer significantly greater assurances of closing for Mandalay's shareholders than did MGM's previous acquisition proposal."

A deal between MGM Mirage and Mandalay would create a formidable presence that would control nearly 50 percent of the hotel market on the Las Vegas Strip and about one-third of its casinos.

Both companies said their boards would meet on Tuesday to consider the offer.

MGM's initial unsolicited takeover offer came on June 4, after Mandalay stunned Wall Street with bumper quarterly results, taken as proof that Las Vegas was still on a white-hot winning streak with tourists after more than a year of improving business.