Kerkorian's Ex-Dealmaker Seeks Casinos With $4.3 Billion Onex Buyout Fund

Date: Monday, June 21, 2010
Author: Bloomberg

Alex Yemenidjian, the former dealmaker for billionaire Kirk Kerkorian, is hunting for more casino acquisitions after buying the Tropicana Las Vegas Hotel & Casino out of bankruptcy.

Yemenidjian, one-time president of casino group MGM Grand Inc. and former head of the Metro-Goldwyn-Mayer Inc. film studio, said he and Toronto-based buyout firm Onex Corp. plan to build a casino company by purchasing properties, whole companies or bidding for new development licenses.

“We have looked at about 25 to 30 different opportunities,” Yemenidjian said in an interview in Las Vegas. “We are looking at two or three opportunities at any particular point in time, not just in Vegas, but everywhere.”

Yemenidjian and the private-equity firm may consider casino investments of more than $1 billion. Tropicana Las Vegas is the first asset in Onex Partners III, which raised a targeted $3.5 billion, plus $800 million from Onex, for “diverse” investments, including gambling, the firm said. The partners have looked in Macau, China, South America and Europe for casinos, made several unsuccessful offers and have bid for an Illinois gaming license.

Yemenidjian and Onex, which has $12 billion under management, scooped up Tropicana last July for about $205 million after buying most of its debt at a discount. They are spending $165 million renovating the iconic resort, which was featured in the 1964 Elvis Presley film “Viva Las Vegas!” and “Diamonds Are Forever,” the 1971 James Bond movie starring Sean Connery.

‘Gaming Platform’

“The objective is to build a gaming platform,” said Yemenidjian, 54, a California State University graduate who is Tropicana’s chairman and chief executive officer. “Onex and I would not have entered into the gaming business just for this single property.”

Onex began searching for casino acquisitions in late 2005, Tim Duncanson, the managing director overseeing media and entertainment deals, said in an interview. The firm was outbid on regional casinos during the boom. After finding an “ideal partner” in Yemenidjian, Onex was surprised its first acquisition was on the Las Vegas Strip, Duncanson said.

In 2005, Yemenidjian oversaw the $5 billion sale of Kerkorian’s MGM studio to a group led by Sony Corp. In the 1990s, he was president of MGM Grand ahead of its $6.4 billion acquisition of Mirage Resorts Inc. He remained on the board until mid-2005, shortly after a renamed MGM Mirage, today the biggest casino operator on the Las Vegas Strip, finished its $4.8 billion purchase of Mandalay Resort Group.

Painful Memory

The MGM studio, based in Los Angeles, put itself up for sale again last year after falling behind on $3.7 billion in debt. An auction brought a high bid of $1.5 billion from Time Warner Inc., people with knowledge of the offer said in March. MGM is also controlled by Providence Equity Partners Inc., TPG Inc. and Comcast Corp.

“It pains me to see it in this condition because I was really hoping that the buyers would do well with it,” Yemenidjian last month said of the studio’s troubles. “We took a lot of pain to buy back all the rights that had been sold to others, and to build the company, and it was all dismantled.”

Yemenidjian, a certified accountant who splits his time between homes in Las Vegas and Los Angeles, has also served as a director of Tracinda Corp., Kerkorian’s investment company, which remains the biggest shareholder in MGM Mirage.

Before partnering with Onex and acquiring Tropicana, Yemenidjian spent three years seeking his own casino investments, eyeing escalating deal prices with disbelief. He will invest alongside Onex.

On the Sidelines

“There were very successful hedge funds and private-equity groups that were acquiring these assets, and I was asking myself, ‘What am I missing? Do they know something I don’t know?’” Yemenidjian said. “I was looking at individual transactions and concluding that the numbers don’t make sense.”

The biggest deals included Apollo Global Management LLC and TPG’s $30.7 billion buyout of Harrah’s Entertainment Inc. in January 2008 and Colony Capital’s an $8.5 billion takeover of Station Casinos Inc. with management in November 2007.

The financial crisis caused other deals inked during bidding wars to be abandoned in costly settlements, such as Fortress Investment Group LLC and Centerbridge Partners LP’s $6.1 billion buyout of Penn National Gaming Inc., and Crown Ltd.’s $1.75 billion acquisition of Cannery Casino Resorts LLC.

“We were trying to buy at the same time as those people, but we were a little too frugal,” Duncanson said of Onex. Trading Tropicana’s debt for equity was a similar strategy to the firm’s successful takeover of Loews Cineplex Entertainment Corp. from bankruptcy with Oaktree Capital Management LLC in 2001, which they sold profitably in 2004.

Tropicana Vegas

The partners are renovating the 53-year-old Tropicana with a South Beach, Florida, theme, refurbishing rooms and suites with plantation shutters and bamboo furnishings, updating the conference and exhibition spaces, changing the restaurants and re-creating the four-acre pool area as a Nikki Beach Club.

Renovating the Tropicana for $165 million wouldn’t have been possible during Vegas’s boom, Yemenidjian said. Labor and material prices in Las Vegas are about 30 percent less than in 2007, before the financial crisis halted most Strip development.

Since the crisis, local housing prices have collapsed 56 percent from their August 2006 peak, and Strip projects including Boyd Gaming Corp.’s Echelon and IDB Development Corp. and Elad Group’s The Plaza have been mothballed.

Yemenidjian said he hopes Las Vegas hotel room prices rise in 2011 and 2012. Resorts in the largest U.S. casino and conference market have slashed room prices and boosted special offers to battle a record two-year slump worsened by new hotel openings. Average room rates have tumbled 27 percent since the 2007 peak, Las Vegas Convention & Visitors Authority data show.

“Because of the supply-demand imbalance that happened at the same time that the economy took a deep dive, nobody has pricing power any more, not even the highest priced properties in town, or the newest properties,” Yemenidjian said.

Las Vegas Strip gambling revenue is up 7.2 percent this year through April, after falling 9.4 percent in 2009 and 11 percent in 2008, according to Nevada’s gaming control board.