Billionaire finds time for small-time casino deals

David Strow

Wednesday, May 24, 2000 | 10:44 a.m.

Billionaire Carl Icahn, legendary for his takeovers of financially distressed companies, is currently trying to pull off what could be one of the biggest takeovers of the year -- the acquisition of Nabisco Group Holdings, one of America's most well-known food companies.

Icahn, a 10 percent shareholder in Nabisco, is offering $6.5 billion for the company, or $22 per share. He faces stiff competition for Nabisco, however, including a rival bid from tobacco giant Philip Morris.

Yet despite his high-profile battle for Nabisco, Icahn found time Tuesday to drop by for the grand opening in Las Vegas of the Arizona Charlie's East casino -- a relatively paltry investment for Icahn, totaling $53 million so far.

Icahn said casinos are a "fun" business -- and he's keeping his eyes open for more opportunities to expand that business in Las Vegas.

"I like it out here anyway. I like Las Vegas," Icahn said. "I find (gaming) an interesting business.

"Casinos are a great business if you don't have too much debt."

Icahn has built his Las Vegas holdings over the past several years with the takeover of the Stratosphere hotel-casino and the two Arizona Charlie's casinos in bankruptcy proceedings. The Stratosphere is his largest Las Vegas property, with 1,444 rooms. Arizona Charlie's East has 300 rooms and the original Arizona Charlie's 258.

Icahn also controls Lowestfare.com, a Las Vegas-based Internet travel company. The last has proven to be beneficial for the Stratosphere -- over the last four months, Icahn said 6,000 room reservations at the Stratosphere have been booked through Lowestfare.com.

Icahn said he will continue to invest in these properties. He's investing $65 million to complete a 1,000-room tower at the Stratosphere, and said his future plans for the property now include the addition of a convention center.

With all of his casinos, Icahn has focused on using low pricing as his selling point over competitors. Usually, size gives companies power to use pricing as a weapon against smaller competitors -- but that's not the case with his casinos, Icahn said, because they don't have to service the heavy debt load his larger competitors face.

"We don't have the interest payments our competitors have," Icahn said. "The big guys ... I don't think they can afford to compete."

"As far as capital goes, I can play that game with any of them."

While none of his three casinos face any appreciable debt loads, some Strip properties may face difficulty because of their sizable debt in the future, Icahn predicted.

"There could be problems for some casinos because of their debt structure," Icahn said. "They overbuilt the south end of the Strip."

Financial struggles have created opportunity for Icahn in the past. He acquired all three of his Las Vegas casinos -- most notably the Stratosphere -- after each fell into bankruptcy.

Icahn took over the Stratosphere following that property's default on $120.6 million in secured mortgage bonds. Icahn accumulated an 85 percent position in these bonds after the default at a steep discount, then gained control after a bankruptcy court approved the conversion of these bonds into equity. Icahn is currently attempting to buy out the remaining 10 percent of Stratosphere for $9.4 million, a bid the company has rejected.

Arizona Charlie's on Decatur Boulevard was taken over in similar fashion, after Becker Gaming Inc. defaulted on $55 million in debt. Icahn took a 52 percent stake in these bonds, then gained control after converting the bonds into equity in bankruptcy court.

Icahn is currently pursuing a similar strategy with two distressed casinos in Atlantic City. Icahn has offered to invest $70 million into the bankrupt Sands Hotel & Casino in Atlantic City, and to exchange $182.5 million in old bonds for $110 million in new debt. The deal would give Icahn 47 percent control of the Sands.

In a separate deal, Icahn is awaiting bankruptcy court approval of a plan that would give him control of the bankrupt Claridge in Atlantic City. Icahn built a 40 percent stake in the Claridge's $85 million in notes at a discount, and has proposed a restructuring that would give him equity control of that property as well.

Icahn said he's open to more buyouts in Las Vegas, but only at the right price.

"We're not looking actively," Icahn said. "If something comes up, we very well could proceed."

Most notably, Icahn said he competed for control of the Desert Inn hotel-casino, put up for sale by Starwood Hotels & Resorts Worldwide Inc. after years of financial difficulty.

"We made a bid for it the first time around, and lost by about $30 to $40 million," Icahn said.

Sun International Hotels bid $275 million for the property, but later withdrew from the deal. This left the door open for Steve Wynn to acquire the Desert Inn for $270 million in cash. Icahn said he considered making a second offer, but ultimately did not re-enter the bidding for the property.