Las Vegas Sun

March 19, 2024

Agreement reached for sale of Aladdin

A partnership that includes the co-founder of the Planet Hollywood restaurant chain has reached an agreement with the owners of the bankrupt Aladdin hotel-casino to buy the 2,587-room resort on the Las Vegas Strip.

A joint venture between Planet Hollywood Chief Executive Robert Earl, Bay Harbour Management LC and Starwood Hotels and Resorts Worldwide Inc. says it would re-theme the resort, which has operated under Chapter 11 bankruptcy protection since September 2001, to a motion picture and television motif.

The property would become known as the Planet Hollywood Hotel & Casino if the deal is completed.

"We're very excited about being on the Strip in Las Vegas," Earl said after the announcement was made Wednesday.

He said the joint venture partners intend to keep the 2,000-employee staff of the Aladdin on the job.

Aladdin Gaming LLC, which has been running the hotel-casino as a debtor-in-possession since the bankruptcy filing, has indicated that the hotel's three primary creditor groups back the deal.

But the Aladdin's financial and restructuring adviser cautioned that the joint venture's bid for the property represented only the first step of an acquisition process that could take some time to complete.

Jeff Truitt, a partner for KPMG LLP, Los Angeles, the Aladdin's financial adviser, said the joint venture's offer represents a "stalking horse" bid for the property that, in essence, is a starting point for other interested parties that may present competitive offers.

The joint venture characterized its offer as being worth $635 million, with the assumption of $510 million of restructured Aladdin Gaming notes and liabilities and the investment of $90 million in capital. The venture also would pick up about $35 million in debts and liabilities associated with Northwind Aladdin LLC, a company that operates the resort's utility plant.

Truitt said $510 million in Aladdin debt is the face value of the notes and could have a different value on the market. He would not place a dollar figure on the joint venture's bid.

The deal includes acquisition of the hotel, casino and the 7,000-seat Aladdin Theatre of the Performing Arts, but not the Desert Passage shopping mall, which is owned by Aladdin Bazaar LLC, a subsidiary of Trizec Properties Inc. of New York.

Trizec said today it's encouraged by the deal.

"We believe this is a positive event -- it now starts moving the process forward toward the sale of the hotel-casino. That will then enable us to begin joint planning with the new owners regarding how the properties will be positioned together for greater mutual success. It would be way too premature for us to speculate at this time on any specifics," Desert Passage and Trizec executive Robert Sorensen said in a statement.

Trizec is the second-largest U.S. office building owner and has lost money on Desert Passage. The company, blaming the Sept. 11 terrorist attacks, wrote down the value of the mall by $18 million early last year and by another $57 million in the third quarter. Earlier plans to sell the mall were scrapped in order to stabilize performance, the company said last year.

Truitt said Aladdin Gaming filed the purchase and sale agreement and a sales process motion in U.S. Bankruptcy Court on Wednesday. Within two weeks, Judge Robert C. Jones will consider the sales process, setting in motion a two-month calendar that could lead to the surfacing of competitive bids for the property.

Under terms of the agreement signed by Aladdin Gaming's board of managers and the joint venture, the Aladdin can solicit higher and better bids while the buyers would be entitled to protections offered stalking horse bidders -- in this case, an expense reimbursement of $2.5 million and a break-up fee of $5 million.

Within the next 45 days, new bids for the property could be submitted. Ultimately, there could be an auction among qualified bidders for the Aladdin. The judge would then make final approval of the transaction.

In addition to the Bankruptcy Court process, the new owners would be required to apply for licensing through Nevada gaming regulators, a process that could take several months.

"Obviously, it's all subject to Bankruptcy Court approval," Truitt said Wednesday. "This is the first step in completing a transaction. But all of the key creditor groups are in support of this transaction. That was one of the conditions that the Aladdin board of managers stipulated."

The three key creditor groups include the bank lenders, led by BNY Asset Solutions LLC, which took over as administrative agent for the Bank of Nova Scotia, the original lead lender; senior lien-holders led by gaming equipment lender GE Capital Corp.; and the committee of unsecured creditors.

Although other bidders could emerge and there are still several weeks of court hearings on the horizon, Earl was enthusiastic about putting the Planet Hollywood name on the Aladdin. He's already named Mike Mecca, general manager of the Green Valley Ranch Station hotel-casino, as the president and chief executive officer of the Planet Hollywood hotel-casino.

"The general retheming and rebranding of the Aladdin to the Planet Hollywood is going to provide yet another attraction that Las Vegas and all its spectacular resorts will be proud of," Mecca said Wednesday.

Earl said the the Planet Hollywood restaurant in the Forum Shops at Caesars would remain open should the deal go through.

The movie-themed restaurant chain has gone into Chapter 11 bankruptcy twice between 2000 and 2002 and has closed a number of its restaurants over the years.

The Las Vegas location has always been one of the chain's best performers, Earl said.

Earl said details of what is planned at the restructured hotel would be announced later. However, he said joint venture plans to spend $90 million to revamp the property, some of which will be used to modify the entrance to the property. The design of the Strip entrance has been repeatedly criticized because pedestrians must climb stairs to enter the casino as opposed to other resorts where tourists walk right in.

"The entryways, that was one of the key deficiencies that everybody wrote about the property," Earl said. "That's something we plan to fix."

He also said one of Planet Hollywood's trademark globes would be built at the Strip entrance, "just like the one at Walt Disney World," Earl said.

Earl said the company plans to develop several celebrity-themed suites keyed to the motion-picture industry. He said the company also plans to put in $20 million in memorabilia in addition to the $90 million in improvements.

Another of the partners in the joint venture is Starwood Hotels and Resorts Worldwide Inc., White Plains, N.Y., which, Earl said, "wears three hats in the deal."

He said the company, which formerly owned the Desert Inn and Caesars Palace hotel-casinos in Las Vegas when it acquired ITT Corp., is an equity partner in the joint venture, would manage the hotel under its Sheraton franchise and, separately, would spend an additional $150 million to build a 600-unit time-share development under its Westin Vacation Resorts brand on the property.

Earl said Starwood would not manage the casino.

Starwood's Westin brand also will be on the Maxim hotel-casino property, which is being purchased by Fort Mitchell, Ky.-based Columbia Sussex Corp., which announced in September that it is acquiring the 800-room property for $38 million through its C.S. Las Vegas subsidiary. The Maxim, on Flamingo Road near the Strip, is expected to reopen later this year.

The Wall Street Journal reported today that Starwood chose to re-enter the Las Vegas market in part because the company's loyal customers want to redeem their frequent-traveler points in Las Vegas.

The third equity partner in the joint venture is Bay Harbour Management LC, a company whose principal, Doug Teitelbaum, manages a fund and has been a shareholder in Planet Hollywood and a supporter of Earl's projects.

An analyst who tracks the gaming industry said the elements brought to the deal by the joint-venture bidders have good potential.

"I think it (the deal) is creative," said Andrew Zarnett, an analyst for Deutsche Bank, New York. "Clearly, the money behind the deal, Bay Harbour is working with the banks and melding Starwood's experience and the Westin time-share component and the Planet Hollywood name with Mike Mecca, who I consider one of the top property guys in Las Vegas, they're all good moves. It's a package that should work."

Zarnett said the public's love for Hollywood has been well documented with higher ticket sales in recent years and that the power of the movie industry has exploded with the popularity of the DVD. He said he expects people would gravitate to the movie theme the way they are attracted to the Hard Rock hotel-casino to see music industry paraphernalia.

Bill Timmins, president and chief operating officer of Aladdin Gaming, said employees are generally optimistic about the latest developments, although he has cautioned them that it's early in the process.

"I think it's a little too hot-off-the-press for me to get any immediate reaction," Timmins said today. "In the next few weeks when it starts to sink in, I'm sure there will be more reaction. We made it clear that this is the very beginning of the process, but that it's a very good first step."

Timmins said he and chief financial officer Thomas Lettero eventually would leave the property, but assist in the transition of management to whatever bidder is successful in acquiring it.

He said he is optimistic about the prospects of turning the property over to Mecca and he said the Starwood reservation system has helped with that company's success and would be positive for the hotel.

Earl said it is too early to determine what attractions at the Aladdin would be kept and what would be revamped as part of the Planet Hollywood makeover.

"I'm a big fan of a lot of the elements of the Aladdin," Earl said. "The food is exceptionally good and there is a good staff in all departments, which is why we wanted to keep all the employees."

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