Pic: LucasFilm
Earlier this month, the WSJ reported on the beginnings of a showdown between legendary billionaire corporate raiders Carl Icahn and Kirk Kerkorian.
Kerkorian has been involved with Las Vegas since 1962, when he bought the land on which Caesars Palace was built. Through his ownership of the MGM movie studio, he came to own a stake in MGM Mirage, which includes the eponymous Vegas resort, plus the Bellagio, the Mirage, New York New York, Circus Circus, Mandalay Bay, the Luxor, and the Excalibur.
That stake is currently about 53% of the equity, which is worth $900 million, down from $14.9 billion in late 2007, as the economy has crushed the investment on numerous fronts: general market declines, lack of disposable income for gambling, and Las Vegas property values plummeting. Poor performance like that is blood in the water for investors like Kerkorian and Icahn.
Icahn takes the bait, after the jump.
Icahn has reportedly been buying up, or holds, about $500 million in MGM Mirage debt. That’s not enough to do anything right now, but significant tranches come due in July ($227 million) and October ($821 million). If MGM Mirage can’t make the payments, Icahn will have a blocking position when the company seeks to restructure. Interestingly, the debt is not secured by the major casino properties, so the banks are incentivized to stay out of bankruptcy, because there’s nothing to foreclose on.
But billionaire corporate raiders typically don’t play well with others. On the surface, they may appear to have a lot in common. They’re even close on the Forbes list: Icahn is #20 at $12 billion; Kerkorian is #27 at $11.2 billion (coincidentally, yet another BCR is sandwiched in between: Ron Perelman is #26 at $11.5 billion).
But this could be a Biggy/Tupac thing: Kerkorian is a lifelong resident of Los Angeles; Icahn calls New York home. Icahn went to Princeton; Kerkorian never even went to high school.
Kerkorian is reportedly planning to sell the Mirage resort to raise cash to make the payments, rather than letting the company go into bankruptcy or be taken over by creditors. It may be a savvy move, though – the Mirage is one of the less-profitable properties and it frees up cash to carry him over until the massive downtown City Center project is completed.
City Center is MGM Mirage’s $8.6 billion resort and residential project on the Las Vegas Strip that it owns jointly with Persian Gulf investment vehicle Dubai World. Dubai World is suing MGM Mirage over what it says is mismanagement and cost overruns at the development. Dubai World skipped its last equity payment on the project in March. The joint-venture partners are facing another deadline payment Friday night of $70 million. It is unclear if Dubai World will pay its half, or if MGM Mirage will foot the entire bill.
MGM last month helped hire the law firm of Dewey & LeBoeuf LLP to handle a potential bankruptcy of the City Center project. MGM also hired the investment bank Evercore Partners to handle its own talks with lenders and other pressing financial issues.
In case that’s not clear: MGM as an investor had City Center retain Dewey. MGM itself is represented by Weil Gotshal and Evercore. Apparently, financial advisors don’t have the same conflicts concerns.
These are tough times in Vegas. The Fontainebleau hotel is suing the banks that reportedly pulled the plug on its development and construction.
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{ 4 comments… read them below or add one }
so the debt Icahn is buying is unsecured?
so the debt Icahn is buying is unsecured?
Yes unsecured debt but the debtholders will end up owning the company.
Yes unsecured debt but the debtholders will end up owning the company.