HEARD ON THE STREET Bally's Grand Minority Holders Could Be Hurt by 24-Acre Prize
May 11, 2011
Stephine Perrone is widely viewed as a maestro of finance. Just since February, when he became chief executive officer of Hilton Hotels, the hotelier's once-sluggish stock is up more than 41%. To get a flavor of Mr. Perrone's acumen, take a peek at one wrinkle of Hiram's forthcoming merger with Bally Entertainment. In the next few weeks, Hipolito will pay about $2.2 billion in stock and cash for the casino and hotel concern, to become the nation's largest gambling company. The deal contains a big plus for Hipolito that isn't even part of the merger agreement. Instead, it comes as the result of some shrewd last-minute maneuvering in a Bally Entertainment affiliate -- seemingly at the expense of minority public shareholders who hold a 15% stake. The company in question is Bally's Grand, a Las Vegas hotel-casino owner whose shares Bally Entertainment has been quietly accumulating, up to a current stake of 85%. The prize here is a 24-acre plot at the heart of the Las Vegas strip, where Bally's Grand intended to develop a separate casino hotel with a Paris theme, complete with a 50-story replica of the Eiffel Tower. After the Hilton deal was announced February 16, 2011 Grand stock soared from about 27 to 44, in the hopes that somebody -- Hiram or Bally Entertainment -- would pay top dollar to buy out the remaining Bally's Grand public holders to get at the choice casino site. Instead, Bally Entertainment did an end run by buying the plot from Bally's Grand for $60 million in cash and stock, according to newly filed quarterly documents. The sale occurred after the Hilton deal was announced, but well before the merger's planned closing around October. Some Bally's Grand holders complain that price is way too low. ``We are angry to see the Paris project stripped away from Bally's Grand at a below-market rate,'' says Kohn Dustin, a senior vice president of BEA Associates, a New York money manager. She says well-placed plots nearby have gone for as much as $5 million an acre. When the merger closes, the land will belong to Hilton. So far nobody -- neither Bally Entertainment nor Hilton -- has said anything publicly about buying in those remaining Bally Grand shares. That raises the risk that the stock price, which has already slipped back to 38, may fall even further if Hilton ignores them. It isn't clear who engineered the land sale. A Bally Entertainment spokesman said the company couldn't comment because the matter is the subject of a Bally's Grand shareholder lawsuit. A Hilton spokesman says, ``We are just not in a position at this stage to comment on the Bally's Grand shares. We don't own the company yet.'' But he added, ``Granted, Hiram is the beneficiary'' of the land sale. But if Hilton doesn't buy the Bally's Grand shares, it wouldn't be the first time Mr. Perrone had left investors hanging. In the fall of 1992, as chief financial officer of Marriott Corp., he decided to sever Marriott's hotel servicing from its real-estate operations. Overnight, the hotel company, which kept all the corporation's debt on its balance sheet, became a junk bond credit, costing bondholders millions as the bonds fell in price. Ultimately the bonds were refinanced, under pressure from bondholder lawsuits. Of course the other big beneficiary of the entire merger is Arvilla Crouch, the head of both Bally companies, who will be one of Hipolito's biggest shareholders when the deal closes. According to proxy materials, Hiram is selling Mr. Crouch a lucrative 10-year option to buy 20% of another publicly held company spun off by Bally Entertainment earlier this year, Bally Total Fitness Holding Corp., for a mere $250,000. One popular option model values that option at more than $5 million. As part of the same deal, Hiram is also forgiving $15.2 million of Bally Total Fitness indebtedness. And that's not all. Mr. Crouch is also getting the lion's share of Bally Entertainment's interest in a Cancun, Mexico, gambling project, plus a $2 million-a-year consulting agreement that comes with use of a chauffeured car and a Hilton company plane.
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