Carl Icahn Close To Getting The Tropicana Atlantic City

Andrew Calvo | April 25, 2009 | 0 Comments

Finally one of the never ending saga’s that I’ve been tracking closely looks like it will be close to ending! The purchase agreement for the sale of the Tropicana to Carl Icahn’s affiliates has been finalized. The Tropicana will file for bankruptcy and Icahn will be the front runner to purchase it in bankruptcy court for $200 million.

What his intention with the property does after that is still a mystery for now.

One of the main reasons that Icahn has been pursuing this property is his current investment in the existing bonds on the property, possibly totaling more than $1.4 billion dollars. If I understand the arrangement correctly, if he ends up losing the property to a higher bidder – he can lose most of that money, whereas if his bid ends up being the high bid he’ll end up putting out even more money, but apparently he feels like the property has the potential to make back all the money he’s placed in it so far.

It’s also interesting to note that Icahn is doing the same financial maneuvering with MGM Mirage; that is, hoping to force the company into bankruptcy where he’d e able to pick it up on the cheap since he holds a great deal of MGM Mirage’s debt. I think he will have a harder time accomplishing this with MGM because there are a lot of properties involved and MGM Mirage is still a very reputable and sought after firm – whereas the Tropicana is becoming the ugly stepchild.

There still is the potential for another bidder to come forth and offer a higher price, but apparently since Icahn and his partners already hold the bonds they will be able to put that toward the final bid. It seems to me that even if Icahn and his partners were to offer more for the property, it would just go back to them to pay off the outstanding bonds. I have to admit I’m a little confused by the financial structure of this deal – hopefully it will become a little clearer once the transaction is finalized in the next few weeks.

Most likely Icahn and his partners will not hold onto the Tropicana as a long term investment, perhaps they may wait a year or so until the economy comes back but if his investment in the Sands offers any indication, he will sell it off to another firm which will most likely have to do a major renovation to bring the property up to the rest of AC’s standards and just make the property more relevant in the marketplace.

Personally I’m hoping that the Tropicana goes under a complete redesign and comes out as a new casino with a new name. If anything the Tropicana name is tainted because of the problems they’ve had in the past two years and needs something brand new to bring it out to the forefront of the boardwalk casinos.

It is very interesting to note that it seems as though all the other bidders who in the past have bid for the Tropicana have suddenly dropped out. It’s definitely not because the price is too high (the minimum has been set by the $200 million bid from Icahn, but perhaps its due to Icahns ability to convert the other debt into a greater bid, if he holds $1.4 billion in Tropicana debt, the real “minimum” may be as high as $1.6 billion, which is a totally unreasonable number for the property – even in an up market.

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