Billionaire Davis to Buy Half Stake in Desert Inn
Billionaire real estate investor Marvin Davis agreed Sunday to buy a half interest in Desert Inn Resort & Casino, one of ITT Corp.’s swanky Las Vegas properties. The $200-million deal marks Davis’ first foray into casino gambling properties.
Los Angeles-based Davis Gaming LLC would form a 50-50 joint venture with ITT, which would continue to operate Desert Inn on the Las Vegas Strip. Davis would pay $150 million in cash, and the joint venture would issue $100 million in new debt, netting a total of $250 million in new capital for ITT.
ITT President Robert Bowman said the money would help finance a $2.1-billion stock buyback campaign that is aimed at thwarting a $10.5-billion hostile takeover bid from Hilton Hotels Corp. ITT is trying to boost its share price by selling assets that don’t fit with its more profitable hotel chains. In addition, ITT announced three weeks ago that it would split itself into three separate companies.
Desert Inn is in the midst of a $180-million renovation that ITT hopes will result in the first five-star rating from the prestigious Mobil Travel Guide for a Las Vegas hotel. The remodeled Desert Inn is scheduled to debut in October.
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ITT, which also owns Caesars World Inc. and the Sheraton hotel organization, would continue to manage Desert Inn for 10 years, with an option to extend the management contract for another decade. Caesars World includes Caesars Palace in Las Vegas and two other properties in Atlantic City, N.J., and Lake Tahoe, Calif.
ITT announced earlier this year that it was looking for a buyer for the hotel, which it bought in 1993 for $160 million. Davis telephoned ITT Chairman and Chief Executive Rand V. Araskog a few months ago and got the negotiations going, ITT spokesman Jim Gallagher said.
Davis--who has previously owned Beverly Hills Hotel and the Pebble Beach golf course in Monterey, Calif., in addition to the 20th Century Fox studio--has been looking for a toehold in the Las Vegas gambling market for some time. In a statement, he called Desert Inn “a unique property” with “a rich and colorful history on the Las Vegas Strip.”
Davis could not be reached for comment.
ITT was initially interested in a sale because it had become concerned that Desert Inn and Caesars Palace were too dependent on revenue from baccarat. Revenue from baccarat is “highly volatile,” and a sale of Desert Inn would “reduce our potential exposure when things went bad in baccarat,” Gallagher said.
But the renovation is turning Desert Inn into a high-class resort, complete with luxury suites, an 18-hole championship golf course and a European spa. The reconfigured Desert Inn is expected to produce more revenue from the hotel side than from gambling. With less risk from baccarat, ITT decided to keep a half-interest in the property, Gallagher said.
Terms of the sale came as a surprise to some analysts, who had questioned whether ITT could recoup the money it has invested in renovating the unprofitable hotel and casino. Desert Inn lost $22 million in the first quarter.
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“We were skeptical about the price given the lack of profits,” said Bear, Stearns & Co. analyst Jason Ader. “This has turned out to be a real, nice positive surprise for ITT shareholders.”
The deal also includes a 34-acre adjacent property, where ITT may develop a new hotel and casino based on the Planet Hollywood restaurant chain. Those plans are on hold for a couple of years; should they proceed, ITT would manage the new hotel as well.
Sunday’s deal is contingent upon the execution of a definitive agreement and customary closing conditions. The two parties expect to complete the deal by Nov. 1.
Times wire services contributed to this report.
