Updated from 8:03 a.m. EDT

With

MGM Mirage

( MGG) looking to swallow

Mandalay Resort Group

(MBG)

,

Harrah's Entertainment

( HET) could be hungry for an acquisition of its own.

Analysts say Harrah's, the nation's second-largest casino operator, has the strongest balance sheet in the entire industry and would be the only plausible candidate to battle MGM for Mandalay's hand. But the casino operator seems more likely to make a bid on a number of smaller casino operators. Through the last quarter, Harrah's had $357 million in cash, more than what MGM and Mandalay would have as a combined company.

"The likelihood of a competing bid, at least from a casino operator, is low -- in fact, we think only Harrah's has the financial ability to compete for Mandalay," said Joseph Greff, gaming analyst at Fulcrum Global Partners, in a note. "

Caesars

(CZR) - Get Report

is too focused on repositioning the Caesars brand, reducing its debt, and potentially divesting of smaller, non-core assets."

Over the last few months, Harrah's CEO Gary Loveman has been increasingly vocal about seeking additional properties on the Las Vegas Strip, complaining about high real estate costs, which has Wall Street keeping a close eye on the company. But Loveman early Tuesday told

CNBC

that the company wouldn't make a bid for Mandalay -- leaving MGM the lone bidder.

"We're focusing now on completing the acquisition of Horseshoe Gaming and we anticipate closing that deal at the end of the month," said Gary Thompson, spokesperson for Harrah's. "As our CEO, Gary Loveman, has indicated, he believes Las Vegas and Atlantic City are the best growth markets in the U.S. and we intend to invest additional money into both markets, either by expansion or, perhaps, other options."

But even though Harrah's says it won't bid for Mandalay, the company could be eyeing an acquisition of its own. Over the last six years, Harrah's has expanded through a number of big purchases, buying the Showboat in 1998, the Rio in Las Vegas the following year, Players International in 2000, Harvey's Lake Tahoe in 2001 and Horseshoe Gaming in 2003.

Given the unexpected nature of MGM's nearly $5 billion cash bid, few analysts were willing to conclude that MGM has Mandalay in the bag, ceding that a private-equity group could potentially emerge at some point, although that was seen as unlikely. But in Wall Street's eyes, Harrah's has emerged as the company most likely to seek out a merger partner of its own.

With available land scarce on the Strip, Harrah's will need a new avenue for growth after closing its Horseshoe acquisition. Furthermore, with a number of existing casinos moving to expand on the Strip and with MGM gaining a major foothold in the lucrative convention business, the pressure is on Harrah's to develop a competitive response.

As a result, industry watchers rushed to handicap the industry's next consolidation wave. While MGM is the best positioned to bid for Mandalay, analysts were contemplating other large deals.

On Monday, Banc of America Securities analyst Jeremy Cogan said Harrah's, which has the highest credit rating of any of the gaming companies, might even be looking to buy Caesars -- and upgraded Caesars to buy as a result. And Greff said Harrah's could make a play for

Station Casinos

(STN) - Get Report

, which dominates the Las Vegas locals' market and is making inroads in California. (Bank of America does and seeks to do business with the companies covered in its brokerage reports, while Greff certified that no part of his compensation was based on views expressed in research reports.)

Smaller companies may opt for consolidation, if only to keep pace with their larger rivals. Specifically, Greff said a pairing between

Penn National

(PENN) - Get Report

and

Argosy Gaming

( AGY), or Argosy and

Aztar

( AZR) would be plausible. A number of analysts agreed, saying that smaller gaming operators could be snapped up if large-cap gaming companies use their free cash flow to go on a spending spree.

"With strong fundamentals across the industry, limited opportunities, favorable capital markets and still-low interest rates, relative to history, we think the industry could be entering another consolidation period," Eric Hausler, gaming analyst at Susquehanna Financial Group, in a note. "The most aggressive acquirers in the business remain Harrah's, Penn National and

Boyd Gaming

(BYD) - Get Report

."

Of course, not everyone believes that MGM's move will spark merger mania. Some analysts foresee a smaller consolidation, one where rivals pick through discarded assets. Goldman Sachs analyst Steven Kent told investors "many of the other operators are already too leveraged or too small to go out and make a sizeable acquisition."

But even if Harrah's can't link up with another casino operator, there could be plenty of acquisitions for it to make in the wake of the MGM/Mandalay merger.

A combined MGM/Mandalay would come under serious regulatory scrutiny from the Federal Trade Commission and state and local regulators -- which could force MGM to sell assets. If the deal goes through, the duo would control about 40% of the slot machines and nearly 50% of the hotel rooms on the Las Vegas Strip.

While these percentages will fall over time, especially once the 2,700-room Wynn Las Vegas opens in 2005, government regulators could step in -- especially given the fact the combined companies would own 95 acres of developable land on the Strip.

MGM/Mandalay would certainly have to sell one of its properties in Detroit, where regulations limit operators to a single gaming license. And with so much overlap in other markets, especially Las Vegas, analysts expect MGM to sell other assets, similar to moves it made after it bought Mirage Resorts for $6.4 billion in 2000. According to a breakdown from Prudential Financial, as many as 13 properties could potentially be on the block if the merger goes through, including a number in Laughlin, Henderson and Reno, Nev.

"Any property off the Strip and potentially even Circus Circus on the Strip could be on the block for the right price," said Hausler. "Post its acquisition of Mirage Resorts, MGM sold off a significant number of assets, including the two Golden Nugget properties."