With another bidder looming,

Grand Casinos

(GND)

may be about to increase its takeover offer for

Casino Magic

(CMAG)

, several analysts say.

Last month, Grand offered $1.60 per share in cash and stock for Casino Magic, which owns three riverboat casinos in Mississippi and Louisiana as well as two properties in Argentina. The deal valued Casino Magic, which once traded as high as 28, at barely seven times its 1997 cash flow and less than book value, leading one investment professional to joke that bid was a "takeunder."

Still, Casino Magic's options appeared limited. The company's stock flatlined around 1 for most of 1997, and analysts say that's not surprising. While Casino Magic generated about $45 million of cash flow in 1997, almost all of that money went to pay interest on its $255 million in debt, leaving the company unprofitable.

And with

Imperial Palace

,

Mirage Resorts

(MIR)

and

Circus Circus

(CIR) - Get Report

opening new hotels and Grand expanding, Casino Magic will need to spend more on marketing and maintenance to keep its properties competitive going forward. That spending will squeeze the company's margins even more tightly.

"It's below book, it seemed kind of like a light bid. But then again, Casino Magic was not in a very strong bargaining position," says

Gerard Klauer Mattison

analyst William Schmitt.

Since the bid, though, Casino Magic has gotten good news on several fronts, Schmitt says. The

Army Corps of Engineers

has suspended Circus' approval to build a casino at Bay of St. Louis near a Casino Magic riverboat. The $350 million Imperial Palace has sputtered since its late December opening as owner Ralph Englestad continues to feud with the locals. Finally, Casino Magic's riverboat in Bossier City, La., continues to gain market share.

Now a second bidder may have emerged for Casino Magic, independent casino industry analyst Alan Woinski says. One candidate is

Boyd Gaming

(BYD) - Get Report

, which operates casinos in several major markets but doesn't own a property in Mississippi.

"There's no question that we'd be interested in going into the Biloxi market eventually," says Boyd Vice President Rob Stillwell. Stillwell says that Boyd has "talked to" Casino Magic in the past but adds that the company hasn't made and isn't considering making an offer for Casino Magic at present.

Grand's stock has increased about 12% since news of the talks disclosed in mid-January, pulling up the value of its bid. The deal now values Casino Magic at about $1.80 per share in cash and stock, or roughly $65 million, in addition to Casino Magic's $255 million in debt.

Still,

Nutmeg Securities

analyst Henry Pounds says Grand has room to increase its bid. Casino Magic, whose ambitious expansion plans largely went nowhere in the mid-1990s, has "turned the corner," Pounds says. "Have you ever heard of a company buying somebody else below book value? It's the final insult for Casino Magic shareholders."

Woinski says that at its current price, the takeover will increase Grand's earnings by 12 to 13 cents in 1998. (Without the deal, Grand is expected to earn $1.62 per share in 1998, up from $1.54 in '97. The company reported better-than-expected fourth-quarter earnings of 26 cents earlier this week.)

Going forward, the deal could prove even more profitable, since it will make Grand the dominant player in the Gulf Coast market. Together, Grand and Casino Magic accounted for some 60% of the area's total casino revenues in 1997. While that percentage is sure to decline because of the competition from Imperial Palace and Mirage, the huge market share will allow Grand to boost its marketing budget and get better deals from suppliers. Grand would also be able to build a mall linking its Biloxi riverboat with Casino Magic's nearby property.

Grand and Casino Magic declined to comment on the deal. Grand stock ended trading Friday at 15, up 1/4. Casino Magic finished at 1 3/4, up 1/16.