|By Howard Stutz, Las Vegas
Review-JournalMcClatchy-Tribune Regional News
Sep. 19, 2009--Penn National Gaming reportedly is in talks to acquire the bankrupt Fontainebleau project, although analysts Friday were skeptical that the regional casino giant would complete a deal for the stalled Strip resort.
Wyomissing, Pa.-based Penn National, which operates casinos and racetracks in smaller markets, has openly said in the past year that it was interested in acquiring a Strip resort. The company has been linked to numerous properties, including hotel-casinos operated by MGM Mirage and Harrah's Entertainment.
The company has more than $1.5 billion in cash, the result of breakup fees from an aborted private equity takeover attempt in 2007.
However, analysts doubted the company would use those funds to acquire the $3 billion, 4,000-room Fontainebleau, which halted construction in the spring when the resort was nearly three-quarters of the way complete. Banks cut off some $800 million in funding, stopping work on the project and putting some 3,000 construction employees out of work.
"Penn has done some work looking at Fontainebleau, much as it has looked at many property acquisition candidates over the last year," JPMorgan gaming analyst Joe Greff told investors after The Wall Street Journal on Friday quoted a source close to the negotiations. The source said Penn National has been in talks to acquire the property for the past three months.
Reuters also reported Friday that Penn National is one of at least two companies discussing taking over Fontainebleau.
"We believe that today's news is old news and somewhat off the mark," Greff said. "As such, we ascribe a low likelihood to Penn's buying Fontainebleau."
Penn National spokesman Joe Jaffoni said Friday the company's policy is to not comment on rumors and speculation. However, he said the casino operator continues to have a strong interest in gaining entry to the Las Vegas gaming market.
Stifel Nicolaus gaming analyst Steven Wieczynski said Fontainebleau doesn't fit Penn National's tastes. The company, he said, would rather purchase an already operating hotel-casino.
"Penn would be acquiring a property that sits in a somewhat remote location and would be adding another 4,000 hotel rooms to an already saturated market," Wieczynski said. "(Return on investment) would be extremely low for the first couple of years until the Las Vegas market returned to more normalized levels."
However, Macquarie Securities gaming analyst Joel Simkins said there was still a chance Penn might move on the Fontainebleau, but it would cost at least $1 billion to finish the project.
"While we believe that a Las Vegas asset makes strategic sense for Penn long term, if Penn moves forward, we see it likely working with a partner as well as minimizing the cash outlay and on-balance sheet risk," Simkins said.
Lawyers for Fontainebleau Las Vegas Holdings LLC have said in papers they filed in federal bankruptcy court that they're talking to a potential buyer that they would not identify. The company told the bankruptcy court this week that while they were "encouraged" with the progress of talks, a deal would be complicated because the project's retail portion is not covered by the bankruptcy proceedings and because it will be hard to find financing to finish the building.
The project's Chapter 11 bankruptcy case was filed June 9 in the U.S. Bankruptcy Court in the Southern District of Florida. Fontainebleau Las Vegas and two affiliates filed for Chapter 11 bankruptcy protection from creditors June 9, listing assets and debt of more than $1 billion each.
In April, Fontainebleau filed a $3 billion lawsuit against the lenders, led by Bank of America and JPMorgan Chase, for allegedly violating financing agreements by halting payments for construction of the 63-story Strip resort, which is on 24 acres at the corner of Las Vegas and Riviera boulevards.
The Associated Press contributed to this report.
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