Wynn gains options to buy Bellagio art collection

David Strow

Tuesday, March 14, 2000 | 10:59 a.m.

Though Steve Wynn will probably depart Mirage Resorts Inc. after its merger with MGM Grand Inc., he's come up with a way to maintain control of Mirage's prized $400 million art collection.

Wynn, who will reap at least $500 million before taxes on the closing of the $6.4 billion deal, struck a key deal with MGM Grand in the merger agreement -- the right of first refusal on any offers made on the art collection at Mirage's Bellagio resort. In some cases, the agreement gives Wynn the right to purchase art below the price offered by another buyer.

The provision was revealed in Mirage Resorts' annual report, filed Monday with the Securities and Exchange Commission.

Half of the art in the Bellagio collection, valued at $400 million, is owned by Wynn and leased to the Bellagio for more than $5 million a year. The remainder of the art is owned by Mirage Resorts.

MGM Grand's agreement with Wynn, which lasts for five years, specifies MGM Grand retains the right to sell any art pieces from the collection. However, Wynn will have the right to match any offer made for any art pieces. The agreement specifies Wynn also has the option of paying the appraised value or the book value of the art, whichever is higher. MGM Grand would be obligated to sell the art to Wynn at this price, even if it's below the offer made by an outside party.

Jason Ader, senior managing director at Bear Stearns, said it wasn't surprising Wynn would negotiate such a provision, given his "emotional" attachment to the art collection.

"Steve was able to collect a very valuable assortment of paintings, and I know it's something he really likes," Ader said. "It's something he'd try to keep in his own collection.

"(MGM Grand) will sell some paintings. If there's certain paintings he likes, he'll exercise his options."

One of the hottest rumors in Las Vegas is speculation Wynn would start over with a new hotel-casino, either by acquiring the Desert Inn or building an entirely new property. Could Wynn be attempting to acquire art for this property?

"(The options) leave the door open for pursuing that property or any other property, for that matter," Ader said.

But Joe Coccimiglio, analyst with Prudential Securities, believes Wynn's motivations may be personal.

"I think it's more likely he wants the art for his own personal (collection)," Coccimiglio said. "I'm not sure he'd want to rebuild the collection at a new casino. That's just my gut feeling."

Wynn also receives the right to purchase Mirage Resorts' Gulfstream III corporate jet and its Fifth Avenue corporate apartment in New York City at fair market values within 10 days of the merger's completion. A spokesman for General Dynamics Corp. told Bloomberg News that used Gulfstream III jets typically sell for about $12 million.

If Wynn's three-year employment pact is terminated by either side, Wynn would collect a lump-sum payment of $11.25 million -- equal to three years' pay plus bonuses. This payment would be "grossed-up," meaning MGM Grand would pay Wynn any amount paid in taxes on the lump-sum payment.

If Wynn resigns, he would receive this payment only if the resignation was "for good cause" -- defined as any job duty which results in a reduction of his duties or obligations while the chairman and chief executive of Mirage Resorts.

The Mirage Resorts parachutes also extend to at least six other company executives -- Chief Financial Officer Bobby Baldwin; general counsel Bruce Levin; and Kenneth Wynn, vice president of development and construction and brother to Steve Wynn. Parachutes were also extended to three other corporate executives, though documents released Monday did not specify who these executives are.

In the event of his departure, Baldwin will receive three times his annual pay plus bonuses -- a lump-sum total of $7.05 million. Like Wynn, Baldwin's parachute payment would be grossed-up for taxes. Baldwin will receive about $27 million pre-tax from the sale of his stock.

Levin's and Kenneth Wynn's parachutes are for two-year periods, rather than three. For Levin, that would mean a parachute payment of $3 million, and a payment of $2.16 million for Kenneth Wynn. Levin's pre-tax take on his Mirage Resorts shares totals $1.4 million, while Kenneth Wynn would collect $24.7 million.

Separately, the agreement revealed that many of Mirage Resorts' expansion projects have been put on hold or canceled -- and puts into question whether the company's expansion into Atlantic City will occur at all.

The filing states Mirage Resorts is "progressing with the design and budgeting of our resort development for the Marina site" in Atlantic City. Called Le Jardin, Mirage Resorts had planned to put a $1 billion resort there, and still intends to file plans for the resort later this year, and is also involved in a joint venture to build a nearby resort with Boyd Gaming called the Borgata.

However, Mirage Resorts added that the company "cannot be certain of the ultimate development or timing of construction on the hotel-casinos planned for the Marina site."

Still, one analyst believes that language is merely designed to provide legal protection to Mirage Resorts.

"MGM is obviously going to have the ability to make changes to that," said Coccimiglio. "I guess MGM is going to want to look at the design of this property and make some changes.

"But I expect MGM to go forward, because I think (MGM Grand Chairman) Terry Lanni very much believes in Atlantic City, and the Mirage site is very much superior to the MGM Grand site. I don't understand why MGM would buy Mirage just to hold that land and not develop it. You don't make any money holding land."

The only development specifically removed from consideration by Mirage Resorts, at least for now, is the Bellagio expansion. The company said it no longer plans to move forward with the 1,300-room, $250 million tower, though its agreement with MGM Grand permits it to spend up to $1 million on design and planning.

Until the merger occurs, Mirage Resorts said its expenditures will be limited to the Atlantic City site, the Danny Gans Theater at the Mirage hotel-casino and the addition of meeting, convention and exhibit space. The company will also be permitted to spend up to $80 million on the maintenance of its properties.

Jim Murren, MGM Grand president and chief financial officer, said it was far too early to speculate on what projects MGM Grand planned to continue -- and which ones would be scrapped.

"We will have no involvement with the Mirage organization until the deal is completed," Murren said. "We need to be very sure we keep the two companies separate and competitive.

"My job is to get the deal done as quickly as possible, then we'll work with the Mirage people to decide what to do going forward. It's not only premature, but inappropriate to say we know what we'd be doing with any of the projects they have at this point."

archive