Investors differ on prospects for Le Reve

Monday, Aug. 26, 2002 | 10:53 a.m.

It's no surprise that Las Vegas casino resort developer Steve Wynn is going ahead with his $355 million initial public stock offering for his Le Reve resort while most other IPO companies are waiting for market conditions to improve.

That's because Wynn is a gambler, Barron's Online reported today. "Wynn's reputation was made on just such deeds of financial daring," a Barron's story said.

After the $6.4 billion sale in 2000 to MGM Grand Inc. of Mirage Resorts Inc., which Wynn founded and where he was chief executive, Wynn purchased the Desert Inn hotel-casino on the Las Vegas Strip and plans to build his $2.5 billion Le Reve resort at that site.

"The proposed gambling palace's name is French for 'the dream,' and investors will be buying into Wynn's big dream if they take a flyer on the company," Barron's said. Wynn Resorts underwriters have yet to put a firm price range on the deal, but they plan to price it the week of Sept. 16. Wynn's initial Securities and Exchange Commission filing anticipated a stock sale of $355 million, which would be just one component of the Le Reve financing package.

Proceeds will repay debt and fund construction of the 2,700-room luxury hotel and 111,500-square-foot casino.

Simultaneous with the IPO, Wynn Resorts plans to issue about $350 million in mortgage bonds.

"There's even a little exotica in the mix. Wynn Resorts plans to invest up to $500 million over the next few years to develop a major gambling concession in Macau, the former Portuguese colony near Hong Kong," Barron's said. Wynn plans to share control of Wynn Resorts in league with a Japanese partner, Kazuo Okada, who owns a publicly traded Japanese gambling-machine company called Aruze.

Another big investor will be Ron Baron, whose mutual funds hold about 5 percent of the stock.

"Still others prefer to wait on the sidelines, aware of Wynn's penchant for extravagance," Barron's said, referring to the luxurious Bellagio resort on the Strip that Wynn created while he ran Mirage.

"In my opinion, Wynn's more interested in building a lavish place than in making money," says Kent Gasaway, portfolio manager for Buffalo Small Cap Fund with assets of $850 million. "I'll wait until people understand how much the cost overruns will be, and then I'd buy it."

But a former stockholder, who favors the IPO, told Barron's: "Wynn is one of the key developers of modern Las Vegas."

Other gambling-company deals waiting in the wings include a $112 million follow-on offering for Isle of Capri Casinos, Barron's said.

Barron's said the Wynn Resorts deal has a feature becoming more common in the hypercompetitive IPO market: Banks may be using their lending power to secure top underwriting rankings.

The marquee on the Wynn Resorts deal include three lead bookrunners: Deutsche Bank, Bear Stearns and Banc of America.

"Normally, the rule is many lead managers, but only one lead bookrunner. Investment bankers jealously guard that position, because it represents the most control over distribution and the biggest slice of fees -- and sharing doesn't comes naturally to Wall Street," Barron's said.

"Commercial bankers are demanding that they receive a greater portion of the fees," Frank McGee, an analyst with Dealogic, told Barron's.