TORONTO -- Onex Corp. is ready to place a bet on the U.S. gambling industry, with struggling casino icon Tropicana Entertainment LLC a potential target for Gerald Schwartz's buyout firm. Onex has top-end help in its hunt for a gambling deal, teaming up with Alex Yemenidjian, the former president of Kirk Kerkorian's MGM Grand casino empire. The firm is employing the same strategy in another beat-up business, building products, where Onex has joined with Masonite International Corp. founder Philip Orsino to seek deals. In gambling, the focus isn't just on the neon and flash of the Las Vegas strip, where the Tropicana is a well-known name in lights, but in more out-of-the-way places. Onex made a bid for Gateway Casinos Income Fund, which runs gambling operations in Western Canada, but fell short in that 2007 takeover battle. The appeal for Mr. Schwartz is the steady, long-term growth of gambling, which has moved into the mainstream of North American life in recent years with casinos appearing all across the continent. "I wouldn't say Vegas necessarily, but we're looking at gaming properties," Mr. Schwartz said in an interview at Onex's Toronto headquarters. "It's a stable business. You clearly have to be in the right parts of it. But all the statistics on gaming show it's been a modestly-growing to fast-growing business for 30 years or more." Even so, the business has been hit hard by the freeze-up in the credit markets, given that the booming growth of gambling had been fuelled in large part by cheap loans. Now, many companies are finding their massive debt loads tough to deal with, and there's concern that Las Vegas, especially, is becoming overbuilt with too many new hotel rooms set to hit the market all at once. On top of that, there's the slumping U.S. economy, which may cause players to cut back. Figures from the Nevada Gaming Commission show the house's take fell 3.9 per cent in February from a year earlier. "If [the gambling sector] is overbuilt and in some difficulty right now it's a good time to look at it," Mr. Schwartz said. "You say Las Vegas is overbuilt. That was certainly my reaction. But you sit down with Alex [and] he'll take you through it. And every single period when Vegas has been overbuilt, it went on to build more rooms successfully." Mr. Yemenidjian is a canny partner, said Jeffrey Logsdon, an industry analyst at BMO Nesbitt Burns Inc. "Alex clearly has an excellent view of the playing field and the players," said Mr. Logsdon, who is of the view that if the gambling industry hasn't reached a bottom, "we're probably within shouting distance." Tropicana ran into trouble when the loss of a gambling licence for an Atlantic City casino left it unable to handle $2.67-billion (U.S.) of debt. The company was forced to file this week for protection from creditors and is now looking to restructure. Onex is trying to gain a position in Tropicana by offering $100-million of financing. Tropicana's glory has faded; its flagship Las Vegas hotel eclipsed by newer and bigger edifices. However, "someone with the right plan and the right amount of capital could turn it into something interesting," Mr. Logsdon said. Onex has in the past used stakes in the debt of troubled companies to gain control, notably in its purchase of cinema operator Loews Cineplex Entertainment Corp. It's a strategy Mr. Schwartz said he expects to employ more because regular takeover plays are scarce due to a lack of debt financing and stubborn sellers clinging to high price expectations. If Tropicana doesn't pan out, analysts said, there are other targets. Harrah's Entertainment Inc. may look to sell a property to reduce debt, as might Isle of Capri Casinos Inc. "The valuations are a lot more compelling today then they were nine months ago," said Onex managing partner Anthony Munk. Onex Corp. (OCX) Close $32.54, down 8¢ |
