Monday, Nov. 6, 2000 | 11:27 a.m.
Steve Wynn's visions for the Desert Inn took a big step forward today, as one of Japan's largest gaming companies announced it plans to invest $260 million in Wynn's company Valvino Lamore.
With the investment, Aruze Corp. gains 50 percent control of Valvino Lamore, a privately held company named after Wynn's grandfather. The deal was finalized in early October, Aruze said in a statement.
Aruze is controlled by Japan's Kazuo Okada, listed by Forbes magazine as the eighth wealthiest person in that country, with a net worth of $4.7 billion. Last year, he was Japan's largest individual taxpayer.
Aruze is Japan's equivalent of International Game Technology, controlling 45 percent of that nation's $1.5 billion pachinko (gaming machine) market.
"This is a new level of involvement (by Japanese corporations in Las Vegas)," said Shannon Bybee, executive director of UNLV's International Gaming Institute. "We've had some (Japanese investment) in the past, but more individuals, not big corporate entities."
Though it's clear that Wynn still has some ways to go in financing the Desert Inn project, the Aruze investment is a key step in that goal, gaming industry analysts and observers say. There had been rumors in recent weeks that Wynn was having difficulty finding equity capital to finance the project.
"Wynn has hit the jackpot with Okada, a wealthy pachinko manufacturer who will understand his vision in the purest sense," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. "(Okada) is an entrepreneur with a significant presence in the gaming industry.
"The naysayers have been proven wrong again ... you don't bet against Steve Wynn."
Wynn was traveling this morning and could not be reached for comment.
Wynn will almost certainly need more cash to make his grandiose visions for the Desert Inn land reality. In the past, he has discussed a hotel-casino with two 3,000-room towers, each 59 stories high. Eventually, development of the entire 200-acre Desert Inn parcel would encompass several casinos, non-casino hotels, condominiums and other mixed-use developments -- all located on the shores of a 30-acre artificial lake.
"With this investment, Wynn has met his need for equity capital," Zarnett said. "The balance will probably come from bank financing or the high-yield (debt) market."
Zarnett said Wynn, who has already invested $270 million in the Desert Inn by buying it, would probably be able to raise two times the amount of equity capital in debt financing.
Others, however, believe Wynn may still need more equity capital.
"Two hundred and sixty million is a nice chunk of money, but it wouldn't be enough money (to raise debt financing) to build the Bellagio," Bybee said. "It depends on whether (the Aruze investment) is for the overall project, or only to build one portion of the project."
"There are any number of ways he could go," said Daniel Davila, gaming analyst for Hibernia Southcoast Capital. "Him being who he is, I'm sure he has plenty of sources for capital, not the least of which would be (more) international monies. Knowing Wall Street, they're probably lined up around the block ready, willing and able to give him the money."
One potential headache for the new partners, however, could be the Nevada Gaming Control Board. Aruze is currently trying to land a Nevada gaming license -- and ran into difficulties with state gaming regulators in September.
Aruze is seeking a gaming license as part of its planned acquisition of Universal Distributing of Nevada Inc., formerly one of the state's largest slot machine makers, but now virtually out of operation. Under the deal proposed to the control board, Aruze would pay Okada $18 million for the company.
But control board members had concerns about a number of Aruze transactions, particularly over a series of deals that boosted UDN's balance sheet from a deficit of $40 million to a positive value of $18 million in five years. Control board members raised concerns that Okada funneled deals through UDN solely to boost that company's value for a buyout by Aruze -- an arrangement Control Board Chairman Steve DuCharme said "might smack of insider trading" in the United States.
"These are transactions we normally don't see in the U.S.," DuCharme said today. "We've got to take into consideration the various cultural differences, and look at these transactions in their totality."
But the language barrier proved difficult to overcome in hearings, and control board members postponed a decision on the Aruze license after receiving few answers.
DuCharme said agents are currently conducting an investigation, but that a second hearing has yet to be scheduled. DuCharme said he couldn't say how the issue would be resolved yet, though he said Aruze officials are being cooperative in producing information.
However, Wynn and Aruze would not need to receive control board permission for their deal, as Valvino Lamore surrendered its gaming license when the Desert Inn closed in August. Once Valvino Lamore reapplied for a license, however, DuCharme said Aruze and Okada would have to apply for a license as well.
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