|By Rod Smith, Las Vegas Review-Journal|
Knight Ridder/Tribune Business News
May 8, 2004 - Wynn Resorts on Friday announced plans to raise $270 million through a second public stock offering next week, a move Wall Street said had been expected as the company's new Strip project moves closer to opening.
"It doesn't come as a surprise now that (Las Vegas developer Steve Wynn) is getting closer to opening (Wynn Las Vegas) that he needs more capital. I was expecting that he'd need more," Blaylock & Partners analyst Ray Neidl said.
Wall Street sources who requested anonymity said Wynn Resorts' financial backers have been pressing to reduce the company's cost of capital and the cost per room of its $2.4 billion Wynn Las Vegas megaresort, which is expected to open in April on the Strip across from Fashion Show mall.
Original plans for the megaresort called for construction costs of $750,000 per room, as expensive as any major resort ever developed in the United States and far above the Bellagio's original cost of $533,000 per room.
A company filing with the Securities and Exchange Commission this week conceded the possibility of cost overruns, and some recent cost estimates have suggested the per-room cost of construction had jumped as high as nearly $900,000.
However, a Phase II expansion plan announced this week is expected to put the per-room cost of Wynn Las Vegas closer to $625,000 and make it easier to cover the cost of construction and financing.
Wynn Resorts plans to use part of the money raised from the offering to redeem a portion of its outstanding 12 percent mortgage notes on Wynn Resorts, debt that Wall Street analysts called very expensive under today's market conditions.
"Wynn is using its attractive stock price to reduce its very high cost of capital. It's very smart," McDonald Investments analyst Dennis Forst said.
He said the company has a lot of construction under way and expansion plans in the works, but no cash flow because the Wynn Las Vegas megaresort is almost a year away from its planned opening.
The company expects to also use some of the money to help finance the casino resort it plans to build in Macau, for general corporate purposes and, possibly, to finance future acquisitions, the filing said.
Forst said the new offering will let the company reduce its high cost of debt and pay for some of its construction at the same time.
Wynn completed an initial public offering in October 2002, selling 32 million shares -- 20 million shares to institutional investors and 12 million shares to insiders -- for $13 a share.
Wynn's investment bankers had to drop the IPO stock's price three times, from $20 to $18 to $15, before settling on its final $13 price, effectively raising his cost of capital relative to the expected equity in the company.
A competing casino executive whose company is planning a public offering in the near future and who asked not to be named said Wynn was hurt in his original stock sale because the market knew he needed the money to launch his Strip and Macau projects.
The original prospectus had called for selling 20.45 million shares on the Nasdaq stock market at $21 to $23.
The stock offering was supplemented by a $340 million second mortgage on his Desert Inn site on the Strip, and $1 billion in loans from a consortium that included Deutsche Bank Securities; Bear, Stearns & Co.; Dresdner Kleinwort Wasserstein and Banc of America Securities.
Deutsche Bank Securities will act as sole book-running manager for the new offering, and J.P. Morgan Securities, Banc of America Securities and Bear, Stearns & Co. will act as co-managers for the 7 million share offering.
Wynn Resorts also granted the underwriters an option to purchase up to an additional 1.1 million shares to cover any overallotments.
Subject to normal conditions, the sale is expected to close Wednesday when it is expected to be priced at $38.75.
Meanwhile, BusinessWeek magazine this week called investing in Wynn Resorts a gamble on Wynn, his new Las Vegas project and the still-to-be-started casino in Macau.
"Many early bird investors who bought Wynn stock when it went public at $13 in October 2002, took their profits as the stock soared to $39, where it is now. But some investors stayed -- believing the fun had just begun," the magazine said.
Deutsche Bank analyst Marc Falcone said people recognize the huge potential of Wynn's projects and are aware of his track record with the Golden Nugget, The Mirage, Treasure Island and Bellagio.
Falcone has a 12-month target of $46 for the stock and a 30-month target of $59, based on projected cash flow from this Las Vegas and Macau projects.
Wynn could not be reached for comment.
Shares in Wynn Resorts closed Friday at $38.25, down $2.02, or 5.02 percent, on 570,000 shares trade, one-third of normal trading volume.
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