How an octogenarian beat the casino king
ON St Valentine’s Day in 2000, billionaire Kirk Kerkorian opened his newspaper and smelled blood. A column in The Wall Street Journal began like this:
When Steve Wynn, chairman and chief executive officer of Mirage Resorts, held his first investor conference call in July, it went badly. I was surprised,’ Wynn says of the analysts who follow Mirage. They were dumber than I thought’.’’
Wynn was frustrated with critics of his lavish spending. A casino visionary, he is largely responsible for the modern, luxurious tourist mecca that Las Vegas has become since he built the Mirage casino in 1989.
Often called the King of Vegas, he had recently spent tens of millions of dollars buying impressionist art for his latest creation at the time, Bellagio. But his spending — along with troubles at a Biloxi casino in Mississippi — was worrying Wall Street that year: Mirage’s stock had plummeted from about $ 25 a share to a low of $ 10.625.
Kerkorian, the octogenarian investor who controlled MGM Grand, believed his rival’s comments revealed vulnerability. He located his lawyer, Gary Jacobs, and raised a subject that he had dreamed about for years: a takeover of Mirage.
Jacobs suggested sending Wynn a bear- hug letter — so- called because its grip is suffocating. Wynn would receive a polite letter, signed by MGM Grand’s chairman, Terry Lanni, offering to buy Mirage Resorts for $ 17 a share, and the letter would be released publicly.
Donald Trump once ignored a verbal offer for his troubled casino company from Tom Barrack, chairman of Colony Capital. Barrack, a friend of Trump, never publicised the offer or put it in writing. That was friendly.
Releasing a letter publicly wouldn’t be so friendly. It would force Wynn to come up with a plan to create as much value for shareholders as Kerkorian’s offer or face years of lawsuits.
After a week of strategising, Kerkorian called Wynn. This is the way Wynn describes their conversation:
Kerkorian: I got a new idea. How about if I buy Mirage — the whole thing — for stock, cash, anything?’’ Wynn: Are you kidding?’’ Kerkorian: If you don’t want to do it, I’ll forget about it. I wanna send you a letter.’’
Wynn: If you send me a letter, I have to respond through the board.’’
Kerkorian: Oh. Well, Terry sent a letter. I didn’t want to, but he did it.’’
Then Kerkorian mentioned his price: $ 17 a share.
Wynn laughed. He says Kerkorian agreed that the price was low.
After the call was over, Wynn told his wife, Elaine, about it.
What do you want to do?’’ she says she asked. He responded, I want to sell.’’
The letter arrived the next day. Kerkorian’s team also put it out over the newswires and notified the Securi- ties and Exchange Commission. This public move had one aim — to force Wynn’s hand, Jacobs says.
Smelling a high- profile takeover battle, several Goldman Sachs Group bankers flew to Las Vegas that morning, proposing to represent Mirage. When he heard the amount of their fee, Wynn asked that the bankers be ushered into his office.
Let me get this straight,’’ Wynn shouted. Just so I understand. So I get a letter from Kirk Kerkorian. So far, he’s spent 33c. And you want to charge me $ 25 million to respond?’’ Wynn’s tantrum proved to be worth $ 10 million. Goldman reduced its fee to $ 15 million.
At a Mirage board meeting on February 29, the directors gave Wynn and his top executives lucrative new employment terms.
These contracts seemed to obsess Wynn, in particular their effect on his Las Vegas home at Shadow Creek, the art that he had collected, and the company’s New York apartment and Gulfstream III jet, according to several people at MGM Grand who learned details of the board’s discussions during subsequent negotiations.
More time was spent on that than some of the substantive corporate issues,’’ says Jim Murren, then MGM’s president and chief financial officer.
Soon afterward, Wynn and Kerkorian agreed to meet privately at Bellagio to discuss price. Murren had told Kerkorian that Mirage Resorts was worth $ 22 or $ 23 a share to MGM Grand. But Kerkorian didn’t let on. He told Wynn he could go as high as $ 19. When Wynn said he wanted $ 21, Kerkorian grimaced.
Wynn says he also informed Kerkorian that he intended to start work on a new casino almost immediately.
Kerkorian reached his hand across to Wynn, and they shook on it.
When Kerkorian returned to the MGM Grand executive offices, he was electric. This is the opportunity of a lifetime, gentlemen!’’ he announced.
As Kerkorian’s team drew up legal papers, an MGM attorney suggested barring Wynn from opening another casino for a period of time. Absolutely not,’’ Kerkorian responded, according to a witness. The best thing that could happen to us is that Steve comes back and builds a place across the street.’’
When the $ 6.4 billion deal was announced, headlines from Japan’s Yomiuri Shimbum to the Washington Post heralded the end of an era. The London Independent announced: The King Is Dead.’’ Weeks later, at the final annual meeting of Mirage Resorts, a shareholder asked Wynn if there had been an alternative to selling. As much as I’d have loved to buy back the company myself or buy a bigger share of it, it’s not that easy to do,’’ Wynn said. So I found myself a bit trapped.’’
Then he hinted at the truth: that he was already drawing up plans for his own comeback. I’m very upbeat about what comes next,’’ he said.
But I don’t think I’m going to be a public- markets man. How can we ever cater to a 60- day time frame for investors when we’re building resorts for the ages?’’
The closing dinner for Mirage — an event at which corporate executives and bankers congratulate themselves on a deal — was festive.
MGM Grand got stuck with the $ 15 million Goldman Sachs bill, though Murren, who had done Kerkorian’s banking work himself, called the fee highway robbery’’. So, was it friendly or unfriendly? This is a question of great importance to Steve Wynn even after he has built his gambling kingdom anew.
His answer: he wanted to sell Mirage Resorts. ‘‘ People thought it was hostile because of that letter,’’ he says. The bear- hug letter was a ‘‘ mistake’’ on Kerkorian’s part, he adds. It was a move of naivete, not cunning.
Hostile. Friendly. Call it what you like. Wynn’s eggs were moved to Kerkorian’s nest. Excerpt from a new book by The Wall Street Journal columnist Christina Binkley: Winner Takes All: Steve Wynn, Kirk Kerkorian, Gary Loveman, and the Race to Own Las Vegas , 2008, Christina Binkley. Published by Hyperion.