Park Place is seen as likely suitor for the Aladdin

David Strow

Monday, Dec. 18, 2000 | 11:39 a.m.

As one of the Aladdin's owners works to regain its financial footing, speculation is growing that the Strip's newest resort could be prime for a takeover, either through a sale or in bankruptcy court.

And one name emerges as most likely to attempt such a takeover -- Park Place Entertainment Corp., owner of one-third of the Aladdin's bonds.

"The big question mark is what's going to happen to the Aladdin, and does the Aladdin go up for sale?" said Marc Falcone, gaming analyst with Bear Stearns. "I think there are interested buyers of the whole property. They could eventually in the position where it would be up for sale.

"If the Aladdin gets into financial difficulties, then it becomes a position where something needs to occur, either the sale of the asset or restructuring."

Scott LaPorta, chief financial officer of Park Place, declined to comment directly on the possibility that Park Place would attempt a takeover.

"We have an interest in following the Aladdin very closely, since we are an investor in their debt securities," LaPorta said, declining to comment further.

"I think Park Place still has an interest in acquiring the property, sure," Falcone said. "It's a great asset, drives additional foot traffic to their property, and there's a tremendous amount of cross-marketing opportunities. They could buy it at a pretty sizable discount to the replacement value."

The Aladdin is on the Las Vegas Strip next to Park Place's two-casino complex of Paris and Bally's.

Richard Goeglein, chief executive of the Aladdin, declined to comment on the possibility that the Aladdin could be sold, but noted that such a move would require an 80 percent vote of the company's board. That would require both LCI and the Sommer Trust, the property's majority owner, to go along.

Speculation about the Aladdin's future began in earnest Friday, when London Clubs International, owner of 40 percent of the Aladdin's stock, reported a huge plunge in earnings and difficulties meeting the covenants of its debt. The reason, LCI said, was the Aladdin.

LCI had originally intended to invest $50 million in the property, but increased its stake to $200 million after the majority owner, the Sommer Trust, failed to meet capital calls to cover increased construction costs because of liquidity problems. The problem, LCI said, is that the increased income that was supposed to flow from this increased investment did not materialize in recent months as the Aladdin struggled in its early days.

LCI then raised the possibility that it was interested in selling part of its equity stake in the Aladdin.

After the report, British investors shaved off more than 40 percent of LCI's share price, and the British press began speculating in earnest about LCI's future.

The Observer of London reported that LCI itself was now a takeover target, quoting an institutional shareholder as saying, "The company is all up for grabs." The Independent reported that it was likely that LCI Chairman Alan Goodenough would be forced to step down, and that LCI would attempt to refinance its debt and raise 40 million pounds ($59 million) from shareholders.

The financial difficulties of LCI could have ramifications for the Aladdin. In its latest quarterly report, Aladdin Gaming Holdings stated that its $10.3 million cash on hand as of Nov. 9 might not be sufficient to cover debt payments, operations and capital improvements.

"The company is seeking ... additional sources of financing, if needed, through additional bank borrowing or debt or equity financing and/or contributions by London Clubs and the Sommer Trust," the report said.

A $5 million payment to bondholders is due in 11 days, followed by an $11.7 million interest payment Feb. 1.

"I don't think LCI is in any position right now to devote any more capital to the (Aladdin)," Falcone said.

But outside of the Sommer Trust or LCI, it could difficult to convince anyone else to put more debt financing into the property. Aladdin currently carries about $618.7 million in long-term debt, and any new debt financier will likely be last in position for repayment.

The British press has speculated one of the big four Las Vegas gaming companies will emerge to buy part of LCI's stake. The Times of London mentioned MGM MIRAGE and Harrah's Entertainment Inc. as potential buyers of that stake, while the Independent named Park Place and Mandalay Resort Group.

But analysts discount that possibility too, saying it would be cheaper for competitors to wait for a bankruptcy filing, then attempt a takeover. Park Place would be in an excellent position to attempt a takeover in bankruptcy court, since it could push for the conversion of its debt to equity in a restructuring plan.

"For Park Place to buy some of London Clubs' equity doesn't make much sense," one analyst said. "If they own a third of the bonds, they might as well wait, and if the property goes into bankruptcy, they can step in. It's a much cheaper way to buy the equity."