Las Vegas Sun

March 28, 2024

Goldberg Frontier bid was legit

The clamor over Arthur Goldberg's recent bid to buy the strike-ridden Frontier hotel-casino reverberated from the Strip to Wall Street -- everywhere, it seems, but in the executive offices of the Frontier itself.

It raised the hopes of weary Culinary Union members eager to see the bitter battle finally settled after five years of sweltering picket lines, sporadic violence and scurrilous charges and counter-charges.

It raised the expectations of civic and gaming industry leaders eager to keep the longest-running labor dispute in America from continuing to tarnish the city's otherwise gleaming image as the world's No. 1 tourist destination.

It raised the eyebrows of financial analysts seeking auguries from which to divine the future relationship between Goldberg and Stephen Bollenbach, key figures in the pending $3 billion merger of Bally Entertainment Corp. and Hilton Hotels Corp.

It raised questions that casino executives, gaming regulators and Wall Street investment bankers agreed to discuss only if granted anonymity.

And it raised a ruckus that Margaret Elardi ignored. But the Frontier owner has yet to say why she didn't even acknowledge Goldberg's offer.

That's especially puzzling considering the reported asking price for the Frontier.

Elardi told negotiators for Donald Trump, the East Coast real estate and gaming executive, that she wanted $208 million for the property, according to bankers involved in the recent restructuring of his Atlantic City empire.

"Donald was in serious negotiations to buy the property," said one Trump investment banker who asked not to be identified. "But they've only got 40 acres. At the price she was asking, that works out to $5 million an acre.

"He does want to be in Las Vegas, but he's scared of the prices. He's doing great in Atlantic City and Indiana right now, and doesn't want to screw things up by overpaying for a property. And she wanted too much money."

The $5 million an acre wasn't too much for Goldberg, whose $200 million bid was only $8 million shy of the asking price. If you're only 4 percent apart, said another investment banker, you can cut a deal every time.

But you can only cut a deal if both sides are willing to negotiate.

Goldberg clearly was. In fact, he went to extraordinary lengths to get a response, lengths that sparked speculation about a possible rift between him and Bollenbach, about a secret deal with Culinary President Ed Hanley, about possible legal violations, and more.

What Goldberg did was tell Las Vegas SUN investigative reporter Jeff German about the offer. When German's story hit the street, the buzzing spread from Las Vegas cardrooms to Wall Street boardrooms.

Why did Goldberg make his offer right in the midst of a merger? Why did he do it publicly? And was it a unilateral, impulsive action with ominous financial and legal implications?

"One thing's for certain -- you never announce it before you negotiate it," said a Las Vegas casino executive, one of many bemused by Goldberg's move.

"If he's really interested in buying, it's a real weird way to do it," said an Atlantic City gaming executive. "I've never known him to be that public about negotiations. It strikes me as very significantly out of character, and you have to wonder why it's so out of character."

The timing also seemed extremely ill-advised.

"If you made a deal to sell your house in 90 days, and you've got all the papers signed and are just waiting to clear escrow, are you going to build an addition to it?" asked a longtime Goldberg observer puzzled by the bid.

Goldberg wasn't selling a house; he was selling Bally Entertainment for $3 billion. All that remained was the wait for routine legal and regulatory approvals, expected to be completed by November.

If the merger went through, Goldberg would become Hilton's second-largest shareholder and get about $100 million in Hilton stock and Bally bonuses. Acting unilaterally on the Frontier could jeopardize the $3 billion deal, cost Goldberg a huge personal payday and subject him to lawsuits from irate Bally shareholders if the merger didn't go through.

Nobody who knew Goldberg thought him dumb enough to do that.

"He always kind of dabbles on the side," said a Wall Street analyst. "Even as chairman of Bally, he bought more than 5 percent of Circus Circus stock and then sold it. He bought into Caesars as well. Then ITT came along and took him out and he made a huge profit.

"But I don't believe he'd screw up his situation with Bally and Hilton. He has a great deal and a very large position of stock. And he's very swift when it comes to legal angles."

"Arthur is a very aggressive, sometimes brusque individual," said an Atlantic City associate. "He's capable of making some very bold moves. His record in Nevada and New Jersey shows that. He's clearly willing to take chances.

"Now, that's fine if you're the top guy in the company. While he's the top guy in Bally right now, he's not the top guy in Hilton. And the merged Hilton is going to have only one CEO, but it won't be Arthur Goldberg."

A hotel-industry executive who knows Goldberg and Bollenbach agreed.

"Hilton understood what they got with Arthur -- a guy who is, well, volatile isn't the word, but certainly not a shrinking violet. If he stirs things up a little for the company, that can be a good thing. But don't forget who's the boss."

The boss -- Bollenbach -- is a 53-year-old executive who negotiated Walt Disney Co.'s $19 billion acquisition of Capital Cities/ABC. Brought in by Barron Hilton to shake up the staid hotel-casino company, he began talks with Europe's giant Ladbroke Group about merging certain operations, and negotiated the deal with Goldberg.

For his part, Goldberg brought Bally back from the brink of bankruptcy to the verge of consolidating into the world's largest gaming-and-lodging company.

"Bally was wallowing in debt and lacked a real focus and direction," said a New Jersey gaming regulator. "He refocused it, spun off some divisions, paid down its debt and put its financial house in order. Along the way, the stock went from $3 a share to $30."

Bollenbach and Goldberg clearly hit it off and -- thus far, at least -- appear to be working well together. Yet some wonder how long the honeymoon will last.

"When the deal went through, I thought about other acquisitions where the top guy at the acquired company didn't last long," said an Atlantic City executive. "You're talking about dynamic people with big egos who are used to running the show. This marriage with Hilton may not leave much room for him."

Despite that, no one predicted Bollenbach and Goldberg will travel the same rocky road as Bob Stupak and Lyle Berman, longtime friends who parted ways over the management of Stratosphere Corp.

"Bollenbach has certain strategic strengths and Goldberg has certain tactical strengths, and they seem to fit perfectly," said a financial analyst who knows both men.

So why would Goldberg do something that could jeopardize a $3 billion merger?

Well, posited some observers, maybe Goldberg was doing a favor for Hanley and wasn't really serious about the offer. The Frontier owes the Culinary Union millions in fines, back pensions and other benefits cut off during the strike. Elardi won't settle until she can sell at a profit, they opined.

Goldberg could make a public offer, pressuring Elardi to settle with the union, and then the deal could hit "insurmountable obstacles," allowing him to bow out of the purchase gracefully. Yet Elardi couldn't renege on an agreement with the union without incurring widespread public derision.

A far-fetched scenario, most of those questioned agreed. Among other things, Goldberg wouldn't risk his own reputation by negotiating in bad faith.

Then what was the Frontier flap really all about?

In all likelihood, it was exactly what it appeared to be -- and a little bit more.

Goldberg made a sincere, legitimate, financially sound offer with at least tacit approval from Bollenbach. Frustrated over his ability to get Elardi's attention but willing to put his own credibility on the line, he went public in hopes she'd at least consider the bid.

"He tried to get Marge to listen to him, to at least sit down and talk," said one investment banker. "He put in a request for a meeting, and she hasn't even responded.

"He could've spent another $200 million to put up a couple thousand rooms and done $75 million in cash flow a year. That's a pretty good return on a $400 million investment. It could've been a good deal."

It could have been. Meanwhile, the picket lines are still up, the Elardis still ostracized, the Hilton-Bally merger still moving forward, its two architects still working in unison.

And Goldberg watchers shouldn't take the Frontier fiasco as a sign he's losing his touch. After all, people accustomed to thinking logically are often at a loss in dealing with people who don't.

SUN REPORTER Gary Thompson can be reached on the Internet at [email protected]. His office phone number is 259-4059.

archive