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Best of Howard Stutz

Gaming Guru

Howard Stutz

Ruffin itching to get back on Strip

16 December 2008

LAS VEGAS, Nevada -- Phil Ruffin said he was bored.

The Wichita, Kan., businessman, who sold the now demolished New Frontier 19 months ago for $1.2 billion, had an itch to get back into the casino business.

It took him just three weeks to negotiate a $775 million purchase of Treasure Island from MGM Mirage. The deal was announced Monday.

Ruffin, 73, will pay MGM Mirage $500 million in cash and $275 million in secured notes. The transaction, which requires approval of Nevada gaming regulators, is expected to close by the end of June.

Ruffin, who is ranked 215th on Forbes Magazine's list of the 400 richest Americans, said Monday he had been investing in municipal bonds, stocks and other public markets, which headed south in the current economic crisis.

"I didn't like that business. I wanted to get back on the Strip with a major property," Ruffin said.

Treasure Island, which was built by Steve Wynn for $450 million in 1993 as a sister resort to The Mirage, caught his eye.

MGM Mirage acquired the 2,885-room hotel-casino in 2000 when the company bought Mirage Resorts for $6.4 billion. The gaming conglomerate updated the resort in 2003 and changed the theme from families toward a more adult-oriented audience. The hotel-casino was marketed as TI. The mock pirate battle that took place out front of the property in Buccaneer Bay was replaced by "The Sirens of TI."

Ruffin said he doesn't plan any changes.

"I love the theme, I love the pirate show and I love having 'Mystère,' " Ruffin said of the property's long-running Cirque du Soleil show. "We have a great management team and I don't plan on changing anything."

Ruffin also loves Treasure Island's location on the southwest corner of Spring Mountain Road and the Strip. He will acquire Treasure Island's 20 acres, but the property will share a parking garage with the neighboring Mirage and the resorts will remain connected by an elevated tram.

Treasure Island's 3,100 employees will work for Ruffin's company. The management team, led by President Tom Mikulich, will remain with the resort.

Wall Street reacted positively to the deal. Treasure Island isn't considered a core asset for MGM Mirage, which has 10 Strip resorts. Deutsche Bank gaming analyst Bill Lerner said the property's cash flow has averaged about $102 million annually since 2000.

"The TI makes more sense for a sale in our view relative to other MGM Mirage operating assets in Las Vegas," Lerner said in a note to investors. "This is a function of its location at the north end of its largely contiguous assets on the west side of the Strip. MGM would retain other mid-tier Las Vegas assets to target mid-market demographics following this deal."

Gaming analysts speculated MGM Mirage would use cash from the sale for some of the costs associated with the $9.1 billion CityCenter development. The funds will also help the company's liquidity issues.

"In this environment, selling assets is a positive as it should give MGM Mirage more financial flexibility," Stifel Nicolaus gaming analyst Steven Wieczynski said.

Several researchers thought MGM Mirage might part with other properties.

Macquarie Capital gaming analyst Joel Simkins told investors that Monte Carlo, MGM Grand Detroit, Beau Rivage in Biloxi, Miss., and a 50 percent stake in the Borgata in Atlantic City could be on the table.

"Although the recent deal is a step in the right direction, we do not believe that MGM Mirage is out of the woods," Simkins said. "We still remained very concerned about the potential need to raise equity."

The deal is the first major move by new MGM Mirage Chairman and Chief Executive Officer Jim Murren, who took over on Dec. 1. Murren expects MGM Mirage to record a substantial gain on the sale, which he said signals the company's willingness to react in the current economic crisis.

"This is a time when companies are defined and measured," Murren said. "I think (the deal) is a signal that we are being progressive in taking an active role in creating liquidity and financial flexibility."

Shares of MGM Mirage jumped 19 percent on the New York Stock Exchange following the announcement. The stock price closed Monday at $11.50, up 81 cents, or 7.58 percent.

The deal is vastly different from when Ruffin first bought into the gaming industry 10 years ago. He acquired the New Frontier from the Elardi family for $167 million and was considered the property's savior. His purchase ended a 2,325-day strike by the Culinary union. The New Frontier, however, was in disrepair. Ruffin cleaned up the property and had sought an equity partner to help redevelop the 36-acre site before selling to Elad Group.

Treasure Island has benefited from more than $180 million in upgrades since MGM Mirage acquired the resort, including $84 million in the past three years, which included remodeling rooms.

"I think (the Frontier) had about 169 different roof leaks when we bought it," Ruffin said. "We don't have to make any changes to Treasure Island."

Ruffin owns a racetrack in Kansas and eight nongaming hotels around the country. He bought a house in Las Vegas last year. Ruffin owns the seven acres behind the New Frontier site that houses the $1.2 billion Trump International Hotel & Tower. He is a 50-50 partner in the 1,282-unit condominium-hotel with New York billionaire Donald Trump.

"I have a lot of faith in Las Vegas," Ruffin said. "We're going through a couple of bad years, but we'll be strong again. I'm not all doom and gloom."