Le Reve finance package changing

Thursday, Oct. 24, 2002 | 11:08 a.m.

Underwriters for Wynn Resorts Ltd. reduced the stock price for the second time this week for the company's initial public offering to build the $2.4 billion Le Reve resort on the Las Vegas Strip. They now hope to close the deal tonight.

If the strategy works, the stock could be traded on the Nasdaq market Friday and would avert a delay in financing the project -- a possibility that still exists, experts say.

In a Securities and Exchange Commission registration amendment filed this morning, the company, headed by Las Vegas casino executive Steve Wynn, said it would sell 28.1 million shares at an estimated price of between $15 and $17 a share.

Originally, the company had planned to sell 20.45 million shares at between $21 and $23 a share. Earlier this week, the price was reduced to $18 to $20 a share and the number of shares to be sold was increased to 23.69 million so that the company could still raise between $426 million and $474 million.

Under the earlier price reduction, Wynn's ownership of the company was diluted in the plan to offer additional shares. However, in the new plan, the company will offer 12 million shares directly to inside purchasers, including Steve Wynn and his Japanese business partner, Kazuo Okada.

According to the SEC filing, Wynn and Okada, the head of a Japanese gaming equipment manufacturer called Aruze Corp., would each hold just under 24 million shares in the company and each have a 35.2 percent ownership stake. Before today, Wynn and Okada each intended to hold 29.8 percent.

The further reduction of the share price and the current weak state of the IPO market illustrates the challenge underwriters face in completing the deal, a critical component of a larger financing package that includes the sale of $340 million in junk bonds.

The note sale was put on hold until the IPO is completed, though investment executives on Wall Street continued to talk about an interest rate of about 12.5 percent for the Wynn debt when it is issued.

Mike Sullivan, a business professor who studies corporate finance, mergers and acquisitions and IPOs at the University of Nevada, Las Vegas, said the entire deal is now "touch and go" and that Wynn may have to face the option of delaying the IPO.

"He may have to wait until the market gets better," Sullivan said. "He may have to wait six months to a year."

Sullivan said that like most financial markets, the IPO market goes through hot and cold cycles and the current IPO environment is as cold as it has been in 25 years.

"It becomes kind of a game now," Sullivan said. "He could come out at $12 or $13 (per share), but I don't think he'd do that. If he waits a few months, he may be able to get $18 a share because market conditions can change for the better."

Sullivan stressed that he doesn't think the project would die if the IPO is pulled. He also doesn't think Wynn would increase the amount of debt in the project to make it fly because that could further decrease his already low bond rating and reduce the potential stock price.

"That would increase the risk for the whole enterprise, so I don't think he'd do that," Sullivan said. "He has a good name and a good product, but not a proven product."

While delaying is an option, Sullivan said it's also possible the issue could fly tonight at the newly reduced price.

"He has a good consortium of big-name underwriters doing the deal and they have all their best clients on it," he said.

Investors have balked at buying into the Wynn IPO because there would be no return on investment for at least three years.

Le Reve, a 2,700-room luxury resort with a man-made mountain and lake, an 18-hole golf course and the Strip's first Ferrari and Maserati car dealerships, isn't expected to open until April 2005.

Separately, Nevada Power Co. reached a deal this week to sell $250 million of junk bond-rated mortgage notes through lead manager Lehman Brothers Inc.

The notes, which are due in 2009, were priced to yield 12.125 percent for investors.

Dow Jones News Service

contributed to this report.