Nov. 24, 2009--Less than a week after Penn National Gaming made a lowball offer for the bankrupt Fontainebleau, the regional casino operator was outbid for the shuttered Strip project by billionaire corporate raider Carl Icahn.

The former owner of the Stratosphere and the Arizona Charlie's hotel-casinos offered $156.5 million Monday in U.S. Bankruptcy Court in Miami for the Fontainebleau through Icahn Nevada Gaming.

Icahn will be the stalking horse bidder for a project that once had a construction budget of almost $3 billion.

Analysts have said it will take at least $1.5 billion to $2 billion to finish the 3,889-room Fontainebleau, which was about 70 percent completed when construction was stopped in April after lenders cut off $800 million in financing. The 63-story building is on 27 acres on the north end of the Strip.

Reached at his offices in New York City, Icahn declined comment.

The bankruptcy judge set a Jan. 21 date for the Fontainebleau to be auctioned, with Icahn's offer as the opening bid.

Penn National offered $50 million for Fontainebleau, along with establishing a revolving loan agreement of $51.5 million for expenses last week. Penn National reportedly increased its bid to $145 million after Icahn's attorney's announced an offer of $136 million. Icahn increased his offer by $20.5 million and Penn dropped out.

Penn National spokesman Joe Jaffoni said the company could try to top Icahn's offer at the auction. He said the company had not determined Monday whether it will participate in the auction.

Penn National, which applied for a Nevada gaming license in July, has been pursuing a gaming opportunity on the Strip since last year. Company Chairman and Chief Executive Officer Peter Carlino said last week he has toured the Fontainebleau five times this year.

Buying distressed casino assets in Las Vegas is nothing new to Icahn.

Icahn realized a $1 billion profit when he exited the Las Vegas casino market in early 2008, selling the Stratosphere, both Arizona Charlie's and the Aquarius in Laughlin to a private equity firm $1.3 billion.

Union Gaming Group principal Bill Lerner said acquiring the Fontainebleau makes sense for Icahn, who could roll the unfinished building into his portfolio of gaming holdings.

"It's not really shocking because (Icahn) would be near the top of the list of someone seeking to buy a distressed asset," Lerner said. "He could mothball it for future development or make a strategic move with the site."

Icahn began investing in the Stratosphere in 1997 when he purchased $82 million of the property's $203 million in mortgage debt, when payments on a mortgage bond used to finish the $550 million resort became past due.

He then took control of Arizona Charlie's Decatur in 1998 by buying the property's bonds for 75 cents on the dollar in bankruptcy court.

Icahn followed with the purchase for $43.3 million of Arizona Charlie's Boulder, then called Sunrise Suites, in 2000. The property was also in bankruptcy.

Although he has not been involved in Las Vegas for a while, Icahn recently re-entered the casino industry as the largest single equity holder in the restructured Tropicana Entertainment, which will exit bankruptcy early next year.

His company now owns eight casinos, mostly riverboats in the Midwest as well two properties in Laughlin and one in Lake Tahoe.

He also led a group of investors in March that acquired the Tropicana Atlantic City for $200 million at auction. The property will be part of Tropicana Entertainment, which has its corporate headquarters in Las Vegas.

Fontainebleau Las Vegas LLC and affiliates Fontainebleau Las Vegas Holdings LLC and Fontainebleau Las Vegas Capital Corp. sought court protection from creditors June 9, listing assets and debt of more than $1 billion each.

Bloomberg News contributed to this report.

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