Icahn Bets Big On Tropicana - And more News about struggling Casino Operators

01.04.2009, Billionaire investor bids $200M for ailing Atlantic City casino.

Carl Icahn is making a play for a hotel-casino that is down on its luck.

Following months of anticipation, the billionaire and activist investor made a $200.0 million offer to acquire the Tropicana Casino and Resort in Atlantic City on Tuesday, demonstrating how poorly the gaming industry has fared over the last year amid the economic downturn. Year-earlier bids for the struggling casino were closer to $1.0 billion.

The casino had been operating under a court-appointed supervisor since being stripped of its casino license by the New Jersey Casino Control Commission in December 2007. A pricey $2.1 billion takeover that year, paid for in part with budget cuts, led Tropicana Entertainment to lose control of its Atlantic City property at a time the casino business was beginning to show the effects of a weak U.S. economy, which began as result of the subprime mortgage crisis.

Last year, Tropicana Entertainment filed for Chapter 11 bankruptcy protection to restructure and get the company’s debt under control. (See "Tropicana Hits Bottom.")

Icahn's low-ball offer Tuesday set the minimum bid price for the Tropicana in a bankruptcy-court auction expected to be authorized by state casino regulators within two weeks. If no other party bids higher than $200.0 million, Icahn will get the casino- hotel.

A New York-based developer had offered $950.0 million for the Tropicana last year, outbidding an $850.0 million offer by Colony Capital, which owns Atlantic City Hilton Casino and Resort as well as Resorts Atlantic City.

"We are pleased the sale process is moving forward and that we have now reached agreement with the secured lender group on terms of a minimum credit bid for the Tropicana," said Gary Stein, the retired state Supreme Court Justice. "It is my expectation that this stalking horse bid will generate substantial interest from multiple bidders, leading to a robust auction that achieves the highest price possible in light of current conditions in the gaming industry."

The casino industry has been struggling as consumers have been less willing to take risks with their money amid job cuts, tight credit, a housing downturn and a bear market on Wall Street.

Earlier this month, Harrah's Entertainment said fewer patrons at its 53 casinos led to decreased revenue, and it could not guarantee it will generate enough cash flow to fund its debt. (See "Harrah's Could Fold.")

Wynn Resorts (nasdaq: WYNN - news - people ), which has generally fared better than its peers in the down economy, took steps earlier this month to beef up its bank. The casino and hotel operator priced a public offering of 9.6 million shares, or 8.6% of total shares outstanding, for $19.00 per share, in an effort to raise $182.4 million in capital. Billionaire and Chief Executive Stephen A. Wynn is the largest shareholder, with 43.4% of Wynn's stock. (See "Investors Bet On Wynn.")

MGM Mirage (nyse: MGM - news - people ) is facing default as the casino operator said in early March that it would delay filing its annual report and may not be able to pay its financial covenants in 2009. MGM, the owner of 10 Las Vegas Strip hotels, including the Bellagio and Mandalay Bay, incited investor fears last month after saying it had drawn down the remaining $842.0 million of its revolving credit facility. (See "MGM Mirage Needs To Deal.")

Last month, Trump Entertainment (other-otc: TRMPQ - news - people ) filed for bankruptcy, resulting from the firm's inability to meet an interest payment on a bond issue because it ran out of cash in the down economy. The move into Chapter 11, which had been a long time coming, became imminent after billionaireDonald Trump announced he would resign from the company's board due to disagreements with bondholders. His daughter Ivanka Trump also resigned. (See "Trump Casinos Tumble Into Chapter 11.")

Las Vegas Sands (nyse: LVS - news - people ) is also in peril. Last fall, its auditors said it was in jeopardy of breaching certain financial covenant requirements, which would have forced it to suspend multibillion-dollar development projects in the U.S. and Asia. (See "Treacherous Sands For Adelson.")

A week later, Sands, which operates the Palazzo and Venetian resorts on the Las Vegas Strip and two casinos in the Chinese gambling enclave of Macau, announced plans to raise $2.1 billion through a public offering, and that the family of billionaire Chief Executive Sheldon Adelson would convert $475.0 million of notes due in 2013 into stock, reducing the company's debt load. (See "Adelson Antes Up For Sands.")

Forbes.xom

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