Price of Le Reve IPO cut again

Wednesday, Oct. 23, 2002 | 11:13 a.m.

Wynn Resorts Ltd. has lowered the price of its stock offering for the second straight day, again delaying the proposed effective day of the IPO critical to financing the $2.4 billion Le Reve resort on the Las Vegas Strip.

Representatives of Deutsche Banc, one of three lead underwriters for Las Vegas entrepreneur Steve Wynn's newest and largest deal, announced Tuesday that the pricing would occur after the market closes today.

Experts speculated that the new price could be between $12 and $16, casting some doubt on when and even whether the key component in the financing of Le Reve would be completed.

An expert who tracks initial public offerings for Cantor Fitzgerald L.P., said he expected the IPO to be priced at $16 a share, since Wynn has a $16.05 cost basis on the private equity shares he already owns.

Sal Morreale, who works in Cantor Fitzgerald's Los Angeles office, said the price reduction is more a reflection of the IPO market in general and not a reaction to Wynn's project.

"In a better marketplace, this deal would probably have come out with more enthusiasm," Morreale said. "In today's tough environment, deals get looked at with a microscope. It's not necessarily Steve Wynn. It's the state of the brokerage industry."

The Wall Street Journal today said the delay in pricing casts doubt on when and if the deal would be completed and Bloomberg News reported today the second reduction would cut the share price to $15. A Wall Street source who requested anonymity said the price could dip to as low as $12 a share.

Wynn Resorts originally planned to price the issue after the market closed Tuesday after announcing a price reduction from $21 to $23 a share to $18 to $20 a share.

In a revised registration statement filed with the Securities and Exchange Commission, the company said it would offer more shares at a lower price to raise the same amount of cash, part of a complex financing package that also includes bids to sell high- risk bonds.

Instead of offering 20.45 million shares at $21 to $23 a share, Wynn planned to sell 23.68 million shares at $18 to $20 each, the filing said. There was no indication from underwriters if additional shares would be offered with the latest price cut.

The IPO, expected to raise between $426 million and $474 million, is considered a major test for Wynn and the 2,700-room Le Reve proposal. Wynn's reputation as an innovator capable of reinventing the Las Vegas experience is being pitted against a key concern for investors -- that his newest resort won't generate a return until 2005 at the earliest.

Wynn set Las Vegas benchmarks in the 1980s and '90s with the development of The Mirage and Bellagio.

"Steve Wynn has a fabulous reputation in Las Vegas," said Cantor Fitzgerald's Morreale. "But (investors) aren't going to see any revenues for three years. So what are you buying? A resort company or a construction company?"

Morreale said Wall Street doesn't have the patience for speculative deals in today's market.

Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said it's difficult to gauge whether investors are being cautious because of the market in general or whether it's an indication investors have concerns over Le Reve's future profitability.

The IPO market is running at its slowest pace in 25 years, but Wynn also has had some scrapes with Wall Street in previous years when he led Mirage Resorts Inc. Prior to engineering the sale of his company to MGM MIRAGE for $6.4 billion in 2000, Wynn was criticized by some investors for spending too much to build Bellagio, limiting the flow of financial information on his company and filling the board of directors with friendly associates.

Some of Wynn's longtime associates from the Mirage board also are listed as Wynn Resorts board members in a prospectus filed with the SEC earlier this year and in documents filed this week.

The Wynn Resorts IPO is one piece of a complex financing package that also includes high-yield junk bonds.

Bond experts say the high-yield bond market would be helped by the IPO since cash raised would be placed in escrow and serve as a protection to bondholders during the construction phase of the project.

Wynn Resorts and subsidiaries Wynn Las Vegas LLC and Wynn Las Vegas Capital Corp. plan to sell $340 million in second mortgage notes due in 2010.

Dow Jones Capital Markets Report said Tuesday that bonds in the Wynn deal probably would pay 12.5 percent, in line with what experts had predicted last week.

The bonds are rated B3 by Moody's Investors Service and CCC+ by Standard & Poor's, both high-risk categories.