Sommer, LCI still sorting Aladdin details

David Strow

Wednesday, Aug. 1, 2001 | 11:09 a.m.

London Clubs International said this morning it does not have a definitive agreement to take majority control of the $1.2 billion Aladdin hotel-casino, amid concerns that the Sommer Trust, the property's current controlling shareholder, hasn't signed off on the deal.

But LCI is also saying the Sommer Trust's position that no definitive agreement has been signed is a technicality.

"The company's reaction is, 'Yes, he has (signed an agreement),' " said Luke Morton, spokesman for LCI. "I think we both agree he's putting a spin on this."

Jack Sommer, principal of the Sommer Trust, referred calls to the Aladdin Tuesday evening. Neither he nor his spokesman could be reached for comment this morning. And Aladdin officials said they had no information on the supposed deal between the two sides.

What LCI and Sommer signed early Tuesday was a "heads of terms," similar to a memorandum of understanding or a letter of intent, Morton said.

"(The Sommer Trust) would be right, strictly speaking, because they haven't signed a (definitive) agreement," Morton said. "He (Jack Sommer) has signed a heads of terms and not a final agreement, but it means he's signed up to the major terms of the ultimate agreement. There are some issues to sort out, but he has signed up for something."

If the deal is executed, LCI would convert $166.4 million in preferred stock into common shares, boosting its equity stake in the Aladdin from 40 percent to 85 percent. Sommer would be reduced from 57 percent to less than 15 percent. LCI would then attempt to sell off a majority stake in the Aladdin to another company, though many believe that would prove quite difficult, given the Aladdin's $700 million-plus debt load and relatively weak cash flow.

Ultimately, a shift of control of the stock from Sommer to LCI is a technicality, said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown.

"It's been London Clubs' company for quite awhile now, maybe not technically, but effectively," Zarnett said. "This (agreement) makes it technical."

Zarnett pointed out that day-to-day operations of the Aladdin have been in the hands of Bill Timmins, the Aladdin's president and chief operating officer, since the property opened in August 2000. Timmins is LCI's international operations director.

"Bill Timmins has been running the place, and he's their guy," Zarnett said.

The LCI-Sommer deal would first require the approval of the Nevada Gaming Control Board, the shareholders of LCI, the agreement of the Aladdin's bankers, and "variations of the obligations of the Sommer Trust under the Keep Well," LCI's Tuesday statement stated. The "keep well" is the obligation of the Sommer Trust and LCI to provide additional funds to the Aladdin should it fail to meet certain profitability marks. These payments will be eased for the next year under agreements with the Aladdin's banks.

Agreements have also been reached with the banks, Morton said, to defer the amortization of the Aladdin's bank debt. This means, until August 2002, that the Aladdin only has to make interest payments on its bank debt, not principal payments. Currently, the Aladdin carries more than $700 million in debt and other liabilities -- payments on this debt total about $75 million a year.

The Aladdin is now producing less than $50 million per year in cash flow, not enough to service the debt, and bankruptcy has been considered a real threat as a result. By easing the repayment schedule, the threat of bankruptcy should be averted through August 2002.

An $8.8 million interest payment on the Aladdin's bank debt came due Tuesday, though the Aladdin has a 48-hour grace period to make the payment. It is expected that the Aladdin will make this payment by Thursday.