Around these parts, Icahn is known as someone who snapped up some distressed and cast-off casinos, and turned them into a smooth-running operation, then cashed out a high profit. He did the same thing in Atlantic City – and now wants back into the game. He’s also known as the consummate "corporate raider."
Icahn’s life was originally shaping up to be something quite different. Born Feb. 16, 1936, Carl Icahn grew up in a middle-class neighborhood in Queens, N.Y. In 1957, he received a Bachelor of Arts degree in Philosophy and decided to go on to medical school at New York University. After a few semesters, he dropped out and got a job as a stockbroker at Dreyfus & Co. He spent years learning the art of securities arbitrage (defined as the "simultaneous purchase and sale of an asset in order to profit from a difference in the price"), then borrowed money to buy a seat on the New York Stock Exchange.
Icahn went on to craft what would become a trademark of his "shareholder activism": buying firms and then forcing the managers to either improve, buy him out, or spin off at a profit. His hostile takeover of TWA in 1985 branded him a business legend. As a result of these aggressive and clever strategies, Icahn ranks as the 53rd richest person in the world on Forbes’ list, with a net worth of around $9 billion.
In the last decade or so, Icahn has established three main investment vehicles. They are:
A hedge fund, Icahn Partners, which was created in 2004. It manages about $7 billion, of which $1.5 billion is Icahn’s. The fund takes minority stakes in public companies and then typically pushes for change, often threatening a proxy battle. The purpose is to force a quick result — in the form on a big stock buyback, asset spin-offs, or ousting the CEO — to give the stock, at the very least, a temporary boost, and (at best) lasting gains. Icahn is currently engaged in this sort of activism as a debtholder of MGM Mirage.
A holding company, American Real Estate Partners. This was a publicly traded private-equity firm; a mini-conglomerate that bought entire companies and then held onto them for several years, until they could be sold for a much higher profit. This company was sold in 2008 to affiliates of investment bank, Goldman Sachs. In the process, Goldman gained control of the Stratosphere, both Arizona Charlie’s, and the Aquarius in Laughlin, Nev.
Icahn also owns personal stakes in: ARI, a railroad manufacturer; Federal-Mogul, a bankrupt auto-parts company; Phillip Services, a metals-recycling company. These investments total around $5 billion.
Icahn acquired all of his Las Vegas properties after they fell into bankruptcy. He took over the Stratosphere around 2000, following the property’s default on $121 million in secured mortgage bonds. Similarly, he obtained Arizona Charlie’s (now Arizona Charlie’s Decatur) after Becker Gaming LLC defaulted on $55 million in debt. Icahn’s modus operandi is to stealthily accumulate debt or to make surprise attacks in bankruptcy auctions. Before anyone knows what’s happened, Icahn has gobbled up assets at rock-bottom prices.
Case in point: the Sunrise Suites Hotel & Casino, on Boulder Highway. Actually, the Sunrise’s 73,000 square feet of gaming space had never been used. In 1998, shortly before the property opened, developer Michael Mona effectively denied a gaming license. (It was referred back to staff but never resubmitted.) Nevada regulators took exception to some of Mona’s associates, as well as to his accounting practices.
Without a casino to prop up the Sunrise, it went bankrupt in three months. At a January bankruptcy auction, creditor General Bank found itself ambushed by Icahn, who bid $1 million more for the Sunrise, acquiring it and a nearby RV park for an aggregate $43 million. He rebranded the Sunrise as Arizona Charlie’s Boulder, greatly expanding it in the process. As real estate broker David Atwell predicted to the Las Vegas Sun, "Boulder Highway has been producing well, and properly run, the hotel-casino should make substantial money … Arizona Charlie's has got a catchy theme, and I think it would work." It did.
Before the economy’s recent nose-dive, Icahn sold his casino interests in early 2008, to the tune of $1.3 billion. Similarly, in Atlantic City, Icahn obtained the small, aging Sands Hotel & Casino for $60 million in January 1998. Fast-forward to September 2006, when Icahn flipped it for $270 million to Pinnacle Entertainment. The latter, perhaps unwisely, swiftly shut down and demolished the Sands, in order to make way for a megaresort Pinnacle has – to date – been unable to finance.
It was thought that, with his liquidation of AREP and its casino subsidiary to Goldman, Icahn was out of the casino biz. But as bids for the Atlantic City Trop evaporated, who should emerge as a major debtholder but – surprise! – Carl Icahn. He was the lead creditor out of a group that held $1.4 billion in Tropicana Entertainment debt. Icahn pledged $200 million of that as a "credit bid," essentially trading away the debt for a 100% equity stake in the hotel-casino. When no one else was willing to put real money on the table for the Trop, the judge’s gavel descended and Icahn’s bid was accepted, on June 12. Pending approval by the New Jersey Casino Control Commission, this marks the end of an 18-month sale process, during which the casino’s resale value spiraled steadily downard.
How Icahn will run the Trop remains unclear. He may try to reassemble some of his Stratosphere management team. Since that group ran multiple casino properties out of one office, Icahn will not be able to achieve a comparable economy of scale with only the Trop. However, while neither the Stratosphere nor either Arizona Charlie’s would be called luxurious, very few complaints were heard about either during Icahn’s stewardship. Whatever thrift-oriented measures he took, they did not rile customers to the extent that one currently hears about, say, Harrah’s Entertainment … let alone the slumlord style associated with the Trop under banished owner Columbia Sussex.
