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Tuesday, September 28, 2010

Icahn as Gekko - Just in Time for Wall Street 2

Bud Fox: "Why do you have to wreck this company?"
Gordon Gekko: "Because it's WRECKABLE" - Wall Street

Now, I'm not saying that Carl Icahn wrecked the Fontainebleau - the Fontainebleau's ample ambition wrecked itself.  But I couldn't help but think of Gordon Gekko's "Wreckable" comment when I read the NY Post story (h/t VegasRex) about Gekko selling off the furniture out of the Fontainebleau.

"After picking up the bankrupt Fontainebleau Las Vegas on the cheap, billionaire investor Carl Icahn is now holding a fire sale at the massive unfinished casino resort. 
While the project, which is 70 percent complete, sits idle on the Las Vegas Strip, Icahn has started selling off beds, dressers, TVs and other furnishings, according to a source. 
The sell-off, first reported on GamingToday.com, comes after the billionaire investor conceded last month that he has no imminent plans to restart construction.

Icahn raised eyebrows in January, when he bought the 3,800-room resort for $151 million, allegedly without doing any due diligence. The cost to finish the project could hit $1.6 billion -- not including furniture"

I'm no sort of Icahn fan-boy at all - I thought he screwed up royally when he bought the Fontainebleau - but is it possible that this was his plan all along?  People said "Carl - you're crazy - Vegas is dead, and this project still needs billions,"  but maybe all he was after was bulk discount furnishings?  Seems unlikely.  Also, I'm a little surprised that the project has much in the way of furnishings, considering that it's $1.6 Billion away from completion ???   I would have thought that furnishings would be done much closer to the completion. I'd love to know if Icahn turns a profit on his distressed purchase/liquidation.

The NY Post article does provide us with some fantastic No-Shit-Sherlock quotes:

"The move by Icahn, who is known for picking up distressed assets and flipping them, suggested he was betting on a recovery in hard-hit Las Vegas and would eventually turn around and sell the casino for a higher price.
Stripping the rooms one by one is yet another sign that he plans to unload the project rather than resume construction, according to one source."

Ya think?  You don't think he was just unhappy with the firmness of the mattresses? That's something Steve "The Nuts" Wynn would actually probably do - replace all of the mattresses before they'd even been used once because he didn't like the firmness - but not Icahn.

We get another version of the same quote:

"Jefferies analyst David Katz said if the Fontainebleau is selling furniture, "It suggests Icahn's view is a rapid recovery in Las Vegas is not at hand."

Either that or he's like Harvey Keitel's Winston Wolf from Pulp Fiction - an "oak" man (I hope someone gets that reference).  

Which brings me to Vegas and general American Economy bull, John Paulson, who took a large stake in MGM common stock earlier this year.   Dealbreaker recounts John Paulson's quote at a recent dinner:

"As this is the best time in 50 years to buy homes,Paulson advised a group at New York’s University Club, crowded into 3 separate dining rooms, to issue 30 year mortgages to buy a home as “your debt and interest payments get locked in at record lows, while the price of your home will rise.”

“If you don’t own a home buy one,” Paulson recommended. “If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.”"

Oy vey.  Really, Paulson?  Buy another?  Buy a third?  Lend to your relatives?   Yeah - I don't see how that could possibly go wrong.   Maybe Paulson should have bought the Fontainebleau - furniture and all, from Icahn...

-KD

8 comments:

David Merkel said...

Life is tough for Paulson. He had one great trade, and the money is not so easy now; now I fear that he is trying to get others to drink his Kool-aid, which is usually a sign of desperation.

Which is weird, because the consumer is still overleveraged... which was the basis of his big win.

But What do I Know? said...

Thanks for this, Kid. It sounds to me like Icahn bought this sight-unseen because it was just too darn cheap, and now he's finding out it wasn't too cheap, so he's cutting his losses and moving on.

As for Paulson, well, is it possible it's getting tougher for him because he isn't being spoon-fed inside (not insider) info by GS anymore? I mean, if they used him once to bet against their clients (I'm assuming his money came primarily from GS people without a shred of actual evidence) they certainly don't want to use him again--makes it too obvious. . .

BigShow said...

Were your Uncle Conrad and Aunt Ginny millionaires? Well, your Uncle Marsellus is...

Kevin said...

I find myself wondering what Strip hotel will actually be the first to shutter it's doors permanently (and I don't mean for it to close to make room for a new project).

With City Center almost complete and Cosmopolitan coming on-line, where are all the gamers going to come from.

The casino companies have all but priced out the low to mid-level gamblers with their $100+ rooms, $50 night clubs, $50 pools, 6-5 blackjack and tighter slots. I would argue that the low to mid-level gamblers have helped build the higher end places. Big time gamblers take way more out of the casinos in the form of comps than the smaller players.

I'm not one to long for the fanny-pack tourist and those seeking the $3.99 breakfast buffet but I do think I'm a realist. China is getting a better gaming destination reputation for Asian gamblers and there is a plethora of places for American and Canadian gamblers to go that is within 100-200 miles of their homes.

I am not a high-roller but I enjoy the Las Vegas experience. I have been going there for 15 years now and the cost of a visit has far out-paced inflation (not including gaming). I will still continue to go but I do worry about my favorite place to visit.

Kid Dynamite said...

So, Kevin, I have a slightly different view than you, in that I think it's a great time for the mid-tier Vegas visitors. This probably explains why every time i go the IP, Harrahs and the like seem jammed, while Palazzo, Encore et all seem like ghost towns.

I absolutely agree with you about the restaurants and nightclubs - food prics are insane, but even nightclub pricing is off its bubble peak (ie, when I went last year we got buy-one-get-one free bottles at Lavo).

The surplus of rooms has led pricing down everywhere - to the point where I get comped rooms (and i'm not a "high roller" either) - that translates all the way down the scale. I get weekly emails from Mirage about $33 rooms.

All I'm saying is that I feel like the advantageous pricing is coming to all tiers of the market in terms of room prices. Dining remains bubblelicious, and you can see the traffic migrating downstream to the cheaper destinations.

now - to your original question - who will be the first to close permanently? tough one... i don't think any center-strip casino will close permanently. Maybe Circus Circus? But they are basically a walking corpse anyway.

Mark said...

Damn, Kid, I may go down there myself and check out the furniture. I could use a new work desk.

Anonymous said...

las vegas is so yesterday.

the top 2 gaming markets are Macau and Singapore, accoding to Sands.

Daniel said...

Oak is nice.