‘For sale’ doesn’t mean ‘will be sold’

By Liz Benston

Monday, April 27, 2009 | 2 a.m.

Nevada’s largest casino company wants to know if you are in the market for a casino and have several hundred million dollars to spare.

Some Wall Street analysts believe every casino in the MGM Mirage empire is for sale with the likely exception of its original namesake, MGM Grand. Brokers are waiting in the wings to make sales happen, including the gaming specialists at CB Richard Ellis, which recently distributed a brochure beckoning buyers to take advantage of depressed prices.

“For those investors who have always wanted to operate in Las Vegas, those looking to expand their reach into regional markets or even those who have patiently waited on the sidelines to acquire their first casino, now is the time to investigate acquisition targets fully,” the brochure reads.

Companies — or opportunists with business cards — will even come to you with a list of properties theoretically for sale. Some scouts are bypassing American money for foreign shores, where the wealthy may be more open to buying into a market that’s out of favor.

With casinos worth half what they were a year ago, rumors about potential casino sales have run rampant in recent weeks. Most appear to be just rumors, driven by speculation surrounding current and former casino executives. (Investors need a license to receive casino profits, an invasive process that typically has potential buyers circling back to a shortlist of experienced executives who have been licensed in Nevada and could manage a newly purchased property.)

One of the most interesting names is Carl Icahn, a bargain-seeker who bought the Stratosphere in bankruptcy and resold it for a profit at the height of the market. Few of the names tossed about have the money of a Phil Ruffin, who used proceeds from the most expensive land deal in Las Vegas history to purchase Treasure Island from MGM Mirage for $775 million.

When times were flush, casino buyers could buy or start construction with less than $20 million down. Now they need at least $200 million in the bank to start a conversation — a prerequisite that has weeded out wannabe buyers of uncertain wealth, said John Knott, an executive vice president of CB Richard Ellis.

With the exception of Penn National Gaming, which has more than $1 billion after a scuttled buyout, most casino operators in smaller markets, including tribal casino owners, probably don’t have the cash, Knott said.

Indian casinos have big debts to pay in this recession just like the big Vegas operators, he said.

Also, big investors, such as private equity funds, prefer to finance deals with debt rather than cash, which is what MGM Mirage needs right now.

“The list of obvious buyers is short. It’s about who has a gaming license or can get one quickly,” said Joel Simkins, a gaming stock analyst with Macquarie Capital who predicts a handful of new owners on the Strip. “Can MGM Mirage wait six months for a sale to close? Probably not.”

There’s no shortage of bottom-feeders. But sellers may not take the bait — especially if they have so much debt that a sale would make only a small dent in it. Casino companies might be better off restructuring debts in bankruptcy than selling too cheaply, analysts say.

For a deal to make sense, MGM Mirage would need to sell a property at a price that’s at least 7 1/2 times the property’s 2008 earnings, or terms similar to the Treasure Island sale, said Bill Lerner, a consultant with Union Gaming Group. Besides raising cash to make debt payments, Lerner says, MGM wants to sell properties to reduce its overall leverage, which helps it fend off a default on its bank loan.

Las Vegas has been harder hit than many other casino markets, but experts believe it remains a unique destination, a quality that’s appealing to long-term investors.

“For the U.S. and most of the world, Las Vegas is still the Mecca for gaming,” Simkins said. “You’re not going to see this type of infrastructure ever replicated again.”