The Nevada Gaming Control Board has given its OK to gaming licenses for two new owners of properties on the Las Vegas Strip. Drew Las Vegas developer Steven Witkoff appeared before the board for his approval and Carl Icahn was approved for a gaming license, endorsing the corporate raider’s position as the largest individual shareholder in the gaming giant set to emerge from Eldorado Resorts’ $17.3 billion acquisition of Caesars Entertainment.
The state Gaming Commission is slated to consider the recommendations this week and is expected to give its final approval to both decisions.
This will clear the way for the New York real estate magnate Witkoff and his development group, Two Blackbirds Holdings, to move forward with preparing the former Fontainebleau for its long-awaited opening at the north end of the Las Vegas Strip as the Drew. The property is named for Witkoff’s son Andrew, who died in 2011 of a drug overdose at the age of 22.
Witkoff and his partners purchased the 67-story Fontainebleau from Carl Icahn in 2017 for $600 million. Listed at 3,700-plus rooms, it was reported to be 70 percent finished when the global financial crisis hit at the end of the last decade, and its backers walked away. Icahn bought it out of bankruptcy in 2010 for $148 million and, according to Witkoff, spent $10 million a year to maintain it in a fit state for completion once a buyer was found.
“The main component parts (of the building) are good,” Witkoff said during nearly an hour of testimony before the Control Board in Carson City on January 8. “This is essentially a high-end renovation job. It’s in preconstruction today. We’ve essentially X-rayed the entire building.”
Witkoff has said he expects his entire cost to run to around $1.3 billion and has set the resort’s debut for the end of 2022. It will feature more than 550,000 square feet of convention and meeting space, retail outlets, a spa, pool and nightlife venues and an array of restaurants.
The Strip hasn’t seen anything comparable come on line since the Cosmopolitan in 2010.
Witkoff said financing for its completion is in place and a partnership secured with Marriott International and its JW Marriott and Edition brands to help develop and manage the hotel side.
“They really have no presence in Las Vegas. It’s an underserved marketplace for them,” he said.
Veteran Las Vegas Strip executive Bobby Baldwin has been hired as CEO, and Witkoff said union labor would be used for construction and that he’s been in preliminary talks with the Culinary Union to make the Drew a union shop.
He emphasized for the board his belief in the resort as one of the catalysts for a revitalization of the long-neglected north Strip, which in the next couple of years will see completion of a $1.2 billion expansion of the Las Vegas Convention Center, the opening of the first phases of the $4 billion Resorts World Las Vegas casino hotel, new ownership at Circus Circus and major changes under new ownership at the recently renamed Sahara.
Icahn, meanwhile, who owns upwards of 18 percent of Caesars, will follow the board’s endorsement of his lieutenants Keith Cozza and Courtney Mather as non-executive directors of the company.
Cozza is CEO of Icahn Enterprises. Mather is the fund manager for Icahn Capital. Both are expected to remain on the new, enlarged board of the merged companies along with a third Icahn Enterprises director.
Icahn, whose gaming holdings in recent years have stretched from the Las Vegas Strip to the Atlantic City Boardwalk, spent more than $1 billion in 2018 and 2019 to acquire a controlling stake in Caesars, whose underperforming stock (Nasdaq: CZR) was ripe for a takeover after the company emerged from a protracted Chapter 11 reorganization late in 2017 relieved of some $16 billion in indebtedness.
“He thought it would be a good investment,” Cozza told the Control Board.
After solidifying his position in Caesars early last year and taking four seats on the board of directors, Icahn began pressing management to shop the gaming giant, which operates some 38 casinos and racinos in 13 states𑁋including eight on the Las Vegas Strip𑁋most of them owned by VICI Properties, a real estate investment trust spun off in the reorganization.
By June, a buyer was found in publicly traded Eldorado, an aggressive acquirer that has grown over the last five or so years from a small Northern Nevada operator to a regional powerhouse with 23 properties owned or managed in 11 states, among them Tropicana Entertainment, a portfolio of eight casinos purchased from Icahn in 2018 for $1.8 billion.
Icahn, who claims the merger has netted him a 50 percent premium on his Caesars stake, hailed it as a “quintessential example of how an activist shareholder, working collaboratively with the board, can greatly enhance value for all stockholders.”
He “has a unique understanding of the gaming industry,” Mather said in testimony at the licensing hearing.
The merger, a combination of cash, stock and new debt, will see the combined entity of Caesars and Eldorado leveraged by a hefty $15.5 billion, including $6.3 billion of existing Caesars obligations. It’s expected, however, that Eldorado, which is retaining the Caesars name and will hold six seats on its new 11-member board, will look to pay this down by actively pursuing REIT partnerships and outright sales of casinos in Las Vegas and elsewhere.
Or as Cozza put it in the case of Icahn, “We’re not developers. That’s not our core expertise.”
The sales are already well along under Caesars’ current management, working mainly through previously agreed transactions with VICI.
Eldorado, which is busily selling casinos as well, has said also it will jettison Caesars’ international ambitions, including planned casino projects in South Korea and Australia and the pursuit of a megaresort in Japan, and it’s expected that future sales will likely include all or most of Caesars’ 13 properties outside the U.S.
