Trump Could Face Agency Scrutiny If He Pursues Caesars
Developer Donald J. Trump, who is seeking federal approval to buy a controlling interest in Los Angeles-based Caesars World Inc., could also face stiff scrutiny from Nevada gaming officials if either he or the casino company amass substantial debt in trying to consummate or fight the deal.
Casino regulators say they oppose buyers going heavily into debt to purchase casinos and also frown on casinos borrowing heavily to fend off takeovers, because the indebtedness could jeopardize casinos’ ability to quickly pay gambling winnings.
“Nevada has a very definite interest in the financial viability and healthiness of its gaming licensees,” said Michael Rumbolz, chairman of the Nevada State Gaming Control Board. “We will definitely take a look at this (proposed transaction). It’s in the public interest to ensure that” casinos can pay winnings, Rumbolz said.
Trump, who already owns two casinos in Atlantic City, N.J., and is building a third, filed a request with the Federal Trade Commission to buy 50% or more of Caesars World’s outstanding stock and said he may seek control of the hotel and casino company. If Trump were to acquire Caesars World, he would be forced to sell one of his New Jersey casinos since state law allows one individual to own no more than three casinos.
It is not clear whether Trump would have to incur significant debt to acquire Caesars or whether Caesars would have to take on additional debt to fight any takeover bid. The company posted net income of $77 million on revenue of $833 million for the fiscal year ended July 31.
In 1987, Caesars blocked a takeover bid by investor Martin Sosnoff by increasing its long-term debt to more than $430 million and by repurchasing about 31% of its shares for about $325 million. Caesars had originally proposed a $960-million recapitalization program, which was rejected by New Jersey gaming officials as having no “clear business purpose.”
Roger Lee, a senior vice president at Caesars, said his company had not yet formulated any response to Trump. When asked if his company would go into debt to oppose Trump’s takeover bid, Lee said only that Caesars has “not announced any . . . position on hostile takeovers.”
Stock Price Jumps
Just last month, Trump traveled to Las Vegas to attend the Nov. 5 prize fight between Thomas Hearns and James Kinchen. It is not known whether Trump met with any Caesars officials at that time. However, Susan Heilbron, executive vice president of the Trump Organization, said Wednesday that Trump has had a “well-known interest in having casino operations in Nevada.”
In recent weeks, bullish Wall Street forecasts have boosted the price of Caesars’ stock. Analysts now estimate the total breakup value of the company at about $42 a share, or a total of $1 billion. In heavy trading Wednesday on the New York Stock Exchange, Caesars closed at $29.50 a share, up $4.25.
Gaming analysts, however, differed over just how serious Trump is about making a move to acquire Caesars.
Although Trump has followed through on some of his proposed acquisitions--such as that of Resorts International, a casino operator in Atlantic City--he has also profitably sold his stock interests in other casino operators, including Bally Manufacturing Corp. and Golden Nugget, after a run-up in their prices. Trump also failed to follow through earlier this year after he notified the giant entertainment company MCA Inc. that he might launch a takeover by buying as much as 24.9% of its shares.
Could Hit Opposition
“I know there have been cases like MCA, but Donald Trump has made no bones about the fact that he wants (casino) property in Las Vegas,” said Gregory H. Kieselmann, a gaming analyst with L. H. Friend & Co. in Los Angeles. After all, Kieselmann added, Trump “is in the gaming business, not the movie business. You have to believe he is serious about this.”
However, Marvin B. Roffman, an analyst with Janney Montgomery Scott Inc. in Philadelphia, said he believes that even if Trump is serious, he will have a difficult time persuading state gaming boards in New Jersey and Nevada to let him proceed.
“They (gaming boards) have said in no uncertain terms they don’t like hostile takeovers,” Roffman said. “They don’t think it’s a healthy thing for the industry to be highly leveraged. I’m not saying these things are takeover-proof, but I think his chances (Trump’s) are almost nil.”
