Aladdin partner subject of takeover speculation

David Strow

Tuesday, Jan. 30, 2001 | 10:50 a.m.

As his company tries to regain its financial footing, the chairman of London Clubs International is downplaying speculation that a deal for his company could result in the complete sale of its stake in the Aladdin.

But Alan Goodenough isn't denying that his company could be for sale -- or that LCI is willing to talk to buyers about a transaction.

In December, LCI said it would consider selling part of its 40 percent stake in the Strip's newest resort. But reports in the British press are now suggesting that suitors for LCI want to separate the healthy London casino operations from the Aladdin.

A story earlier this month in the Independent of London reported that Ian Payne, the departing managing director of Hilton Casinos, was talking with venture capitalists about piecing together a bid for LCI.

"The plan would be to separate the Aladdin development from the company's London venues ... which would generate the sort of strong cashflows beloved of venture capitalists," the Independent reported.

An earlier story in the Sunday Times mentioned Rank Group, a London-based leisure, entertainment and gaming company, as a potential bidder for LCI.

"Analysts say that while (Rank Group) may be interested in London Clubs' British business, (it) has no intention of becoming involved in its troubled Aladdin hotel and casino project in Las Vegas," the Sunday Times reported.

But Goodenough, chairman of LCI, said splitting LCI from the Aladdin "really doesn't even come into consideration."

"The reason for that is that the contractual, financial and managerial relationships between LCI and the Aladdin are so inextricably bound up that it is almost impossible to separate the two as is being suggested," Goodenough said. "It would be almost impossible to do that. That's not very likely or, I don't think, possible."

Despite being the minority shareholder, LCI holds a majority of the seats on the Aladdin's board of directors. One of its top executives, Bill Timmins, serves as chief operating officer of the Aladdin.

Goodenough did acknowledge, however, that a partial sale of LCI's stake in the Aladdin is under consideration, though he declined to discuss who has talked with LCI about such a purchase. Industry insiders have pointed to Park Place Entertainment Corp. as a likely buyer, given its casinos' proximity to the Aladdin and its one-third stake in the Aladdin's bonds. If the Aladdin were forced into bankruptcy, Park Place could conceivably use this position to launch a takeover.

"We wish to have an interest in the Aladdin as an entity, and we wish to have responsibility principally for the area where we're most knowledgeable, the high end (gaming business)," Goodenough said. "One option we have discussed has been the possibility of disposing of part of our interest (in the Aladdin) to get back into the position we originally intended to be in.

"That may or may not prove possible. That is just one of the options London Clubs is considering in order to raise capital to give us the liquidity to deal with the challenges with the Aladdin over the next 12 months."

But selling Aladdin equity could prove difficult, given the Aladdin's current situation. The Aladdin's bonds now trade at about 42, off from a theoretical par of 76. That puts the Aladdin's equity "underwater" -- meaning the shares wouldn't have value in a restructuring, insiders said.

Besides, one analyst said, LCI has already sold some of its casino assets to put money into the Aladdin project.

"I think the Aladdin probably comprises a significant amount of London Clubs as a company," said Marc Falcone of Bear Stearns. "I agree with (Goodenough), unless London Clubs can just find a legitimate buyer to just buy the property.

"There are very few potential buyers. The most frequently spoken about buyer is Park Place. In our view, it doesn't make sense for Park Place to acquire the equity, given their position in the bonds. You want to be the bondholder here, not the equity holder."

Park Place Chief Financial Officer Scott LaPorta declined comment.

LCI's stock plunged in mid-December after the company reported its earnings had been badly hurt by the Aladdin's struggles. LCI posted a net profit of 800,000 pounds over the first six months of its fiscal year, down from 8.69 million pounds in the year-ago period.

The company reported it had absorbed 2.5 million pounds in operating losses from the Aladdin since its Aug. 18 opening, and 3.5 million pounds in additional pre-opening losses.

The report sent LCI's stock down 44 percent to 56.5 pence -- a level the stock still trades at today.

Still, Goodenough defended LCI's decision to become involved with the project. Originally, it intended to invest $50 million in the Aladdin and operate its high-end casino, but was compelled to increase its sake to $200 million after the Aladdin's majority owner, the Sommer Trust, failed to meet capital calls during construction.

"It is London Clubs' intention to maintain its interest in Las Vegas, and we still have a lot of faith in the market," Goodenough said. "Our original strategy (of running the Aladdin's high-end casino) remains sound."

While saying that there have been "a lot of silly suggestions" made about potential takeovers, Goodenough would not dismiss the possibility LCI could be taken over.

"We are directors of a public company, and we are charged with doing what is in the shareholders' best interest," Goodenough said. "If there were offers which were deemed to be in the shareholders' best interest, we would refer them to shareholders for their vote. It's for shareholders to determine what's in the best interest of the company.

"We have to sort the wheat from the chaff and determine whether offers are serious or frivolous."

Goodenough refused to discuss possible bidders for the company.