Mirage stock trading is active after departure

Gary Thompson

Wednesday, Sept. 8, 1999 | 11:05 a.m.

Institutions wary about the future of Mirage Resorts Inc. after the surprise resignation of Chief Financial Officer Dan Lee were big sellers of the stock today.

But there were plenty of buyers who believe the gaming stock is undervalued, and they helped the share price to climb 68 cents to $12.75 on volume of 9.5 million shares through midday. That's nearly five times the average trading volume for Mirage stock over the past 60 days.

Wall Street gaming investors were shaken by the Lee resignation. Speculation about the cause ranged from a dispute between Lee and Mirage Chairman Steve Wynn over rent paid to Wynn for paintings he owns and is displaying at the Bellagio Gallery of Fine Arts to disagreement over the corporation's overall financial strategy.

For their part, Lee and Wynn downplayed the dispute, saying Lee had resigned to pursue other business interests.

"Dan has been an important part of the Mirage Resorts team," Wynn said in a statement issued by the Las Vegas company. "We wish him well in his future pursuits."

"I have made a large number of friends in my seven years at Mirage Resorts and have a large degree of respect for everyone that I have worked with," Lee said. "I am certain that the company shall continue to grow and prosper, as it has for over the past 25 years.

But uncertainty over the actual cause of Lee's abrupt departure left many analysts concerned about the short-term future for Mirage.

"I think it reduces investor confidence because Dan Lee is one of the best chief financial officers in the gaming industry," said Harry Curtis of BancAmerica Robertson Stephens.

"I think Dan's credibility was based on his financial acumen as well as his experience both on Wall Street and as the CFO of Mirage.

"There's lots of speculation about the real cause. Any intelligent person would have to conclude this wasn't the expected, normal course of business."

"I've heard all kinds of things, including the possibility there was some rancor with Wynn over some lack of disclosure," said Joe Coccimiglio of Prudential Securities. "It's hard to know, really."

"There's a lot of uncertainty surrounding the situation," said Dave Ehlers of Las Vegas Investment Advisors. "Wall Street doesn't like uncertainty and, as is its fashion, will probably sell first and ask questions later."

"It does create uncertainty for the stock and adds risk to the whole Mirage story," said Jason Ader of Bear Stearns & Co. "We've got an avoid rating on the stock and think the near term will be rocky.

"Longer term, it's up to Steve Wynn and the remaining team to put an operational group in place to improve the performance of Beau Rivage and the Mirage and Treasure Island."

Mirage insiders indicated there was no single incident that led to Lee's departure; rather, it was a widening philosophical rift between Wynn and Lee over the nature of the gambling business.

Wynn is attuned to the special nuances of gambling, the nuts and bolts of a business that sees huge swings in earnings with a lucky -- or unlucky -- roll of the dice or turn of a card. He understands the perks and attractions that draw high-rolling gamblers, and the long-term returns they can bring.

Lee, with his background as a Wall Street analyst and investment banker and graduate of Cornell University's hotel school, is more inclined to heed issues related to balance sheets and income statements. He objected to some of Wynn's spending decisions, a tact that caused the Mirage chairman to lose confidence in Lee's loyalty.

Lee's decision to leave, whether his or Wynn's, will leave a major gap in the Mirage management team. The temporary appointment of Bellagio President Bobby Baldwin to assume Lee's role won't alleviate all the uncertainties.

"It's a huge disappointment," Curtis said. "An organization never wants to lose an individual the quality of Dan Lee."

"I think the stock has limited upside until current management can rebuild investor confidence, which includes inserting a qualified CFO and exhibiting improving cash-flow trends at their properties," he said.

Curtis said the company would be well-served by revealing more information about its financial performance. "Greater disclosure leads to investor confidence, a higher multiple and a higher stock price," he said.

"I've always viewed Dan as an important component of the Mirage team," said Ader. "Steve is an artist in architectural design, Barry Shier is one of the best hotel operators in the gaming business and Dan Lee brought strong financial acumen. It's a big loss."

"I'm sad," said Coccimiglio. "There's probably been no one individual who had more impact on my career than Dan Lee. I owe a great deal of whatever success I've had to him. He took me under his wing when I was first starting out, and I'll be disappointed in not being able to work with him."

Unless the uncertainties are quickly resolved, said Ehlers, Mirage's future development plans could be impacted.

"There is a question about whether Wall Street will give the company the money to build its New Jersey hotel-casino because the general impression among analysts, rightly or wrongly, is that there's some turmoil there.

"We have no way of knowing whether the money channels to finance that project will be open."