Mandalay's massive flagship hotel has 1,117 suites

MGM Mirage is now proposing a total bid of $7.9bn (�4.4bn), including $4.8bn in cash, taking on $2.5bn in debt, and $600m in convertible debentures.

An earlier bid of $7.7bn was rejected on Friday but was followed by a weekend of discussions between the two groups.

The two boards will now meet to discuss the new offer on Tuesday.

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".

Vegas domination

A deal between MGM Mirage and Mandalay would create a company that controlled nearly 50% of the hotel market on the Las Vegas Strip, and about one-third of the famous street's casinos.

MGM's owns the Bellagio and MGM Grand, which Mandalay has the Excalibur and Luxor.

Marc Falcone, an analyst at Deutsche Bank, said he thought 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.

Yet investors were not convinced and following the announcement both companies' share prices were down on the New York Stock Exchange.

Mandalay shares fell 47 cents to $67.95 while MGM Mirage shares dropped 71 cents to $46.89.