Monday, June 23, 2003 | 11:21 a.m.
Late Friday afternoon, cheers normally reserved for jackpot winners erupted at the Aladdin.
Word had reached the 2,567-room Strip property that a group led by Planet Hollywood co-founder Robert Earl had cleared a major hurdle toward transforming the Arabian-themed hotel into a resort that will capitalize on the popularity of the movies.
U.S. Bankruptcy Court Judge Robert C. Jones ruled after hearings that took most of the day that "stalking horse" bidder OpBiz LLC, comprised of Earl, Starwood Hotels & Resorts Worldwide Inc., White Plains, N.Y., and Bay Harbour Management LC, New York, was most qualified to buy the property out of bankruptcy.
Earl, after two tries at establishing a Planet Hollywood hotel-casino in Las Vegas in 1996 and 1998, finally hit the jackpot, and employees at the Aladdin joined the celebration.
"They're cheering over at the Aladdin," Bay Harbour managing principal Doug Teitelbaum, with a cellular telephone to his ear after the hearing, told Earl.
Earl just smiled and continued talking to reporters about what lies ahead for the Aladdin, which filed for Chapter 11 bankruptcy protection in September 2001.
For openers, those cheering employees may have been celebrating that they'll all still have their jobs. Earl said he intends to keep the Aladdin staff and won't require them to reapply for their positions.
"I think they're doing a fantastic job during some very difficult times," Earl said.
Four key management officials will be scrutinized by Nevada gaming regulators. Earl, Teitelbaum, Starwood Chairman and Chief Executive Barry Sternlicht and Mike Mecca, the Green Valley Ranch general manager who has been selected to be president and chief executive of the new Planet Hollywood property, will be the subjects of suitability reviews by the state Gaming Control Board.
Mecca already is licensed, so the transfer should take minimal time, Earl said. Most suitability investigations take up to six months to complete.
Earl said he'd start right away to hire an architect to begin the "Planetization" of the Aladdin. A rendering shows a blue- and red-hued structure with the Planet Hollywood name along the top and the company's trademark globe above a Strip entrance. Earl noted that the Aladdin is one of the few Strip resorts that doesn't have its name across the top of the structure.
"That," he said, "is going to change."
Other changes are planned.
Earl said the top two floors of the property will have suites with movie theming. Along the top level will be suites with memorabilia from the careers of Hollywood stars, while suites a floor below will have themes surrounding specific movies.
"There may be an 'Austin Powers' suite or a 'Basic Instinct' suite, with optional ice pick," Earl said.
Earl and Teitelbaum said they negotiated until 5 Friday morning with owners of the Desert Passage mall, Trizec Properties Inc., New York, to produce the foundation of an agreement on issues relating to their relationship at the hotel-casino.
Earl plans to preserve the 7,000-seat Aladdin Theatre for the Performing Arts and use it to stage Hollywood star events, entertainment headliners and weekly movie premieres. He said he wants to remove some of the structures and expand the 114,000-square-foot casino and allow it to "reach out and embrace the theater," a strategy that probably would involve mall property.
He also needs around 7,000 square feet of mall area to reconfigure the Strip entrance beneath the Planet Hollywood globe.
While the partnership plans to operate the property as the Aladdin for an undetermined period of time, Earl said the Planet Hollywood conversion would occur gradually. He said once construction begins, it would take at least a year before a grand reopening would occur -- but Earl promised a star-studded celebration.
The partnership's offer is valued at $635 million -- about half the $1.2 billion pricetag that was on the building when it opened in August 2000. The partnership's bid includes the investment of $90 million for the renovations and retheming, including $20 million pitched in by Starwood.
Starwood, through its Sheraton brand, will manage the hotel only and not the casino. The company once had a foothold in Las Vegas when it acquired ITT Corp., which at the time owned Caesars Palace and the Desert Inn. Company officials said it was anxious to get back into the Las Vegas market because customers wanted a property where they could use points earned in the company's loyalty program, Starwood Preferred Guest.
Starwood also plans to develop a time-share component on land adjacent to the hotel-casino. The company's vacation ownership division, Westin Vacation Resort, is expected to build up to 600 time-share units.
Drama began early in the court hearing when Aladdin's lenders and creditors indicated that the OpBiz bid was the only one to qualify. Attorneys for two rival bidders worked to convince Jones that their bids had merit. Jones allowed competing bidders a few hours to meet among themselves and even sweeten their offers. But Jones ultimately ruled that other offers lacked key components, including a $12.5 million deposit that was required by last Tuesday under a sales process approved by the court last month.
That competing bidders advertised cash offers didn't sway Jones, nor did pitches for their home-grown or otherwise experienced resort management teams.
Los Angeles businessman Richard Alter, backed by Marriott International Inc. of Bethesda, Md., aimed to transform the Aladdin casino into "Asia" -- a Far East-themed casino.
Despite Tuesday's court deadline for submitting proposals, Marriott had not signed a management agreement with Alter's group by Friday's court hearing.
An attorney for Marriott said the hotel giant had the green light from company chiefs to approve a management agreement but would need at least two weeks of due diligence before it would sign a deal.
Jones questioned why the group hadn't worked out a deal sooner.
"This case has been here a couple of years," he said. Extending more time to potential bidders could lead OpBiz to pull out of the deal, he said.
After a court recess, Alter's group came up with a number of concessions, including an offer to defer the casino's management fee until lenders were paid in full. The group also offered to grant lenders the right to purchase an equity stake in its bidding group should it close on the property, matching a similar offer from OpBiz. Marriott could perform due diligence on the property in about a week, the company's attorney said.
Starwood hadn't made its management agreement public in the bankruptcy proceedings, making a Marriott counter-offer difficult, the attorney said. Still, the company had proposed spending millions of dollars to add conference facilities at the property and to reduce the Aladdin's debt, he said.
After Friday's proceeding, Alter said he didn't know whether Starwood's plans to build time shares nearby would affect Marriott's joint venture to build The Chateau, a time-share project across the street from the Aladdin.
Another bidder -- one that hadn't emerged publicly until Friday's hearing -- was Meruelo Group LLC, which represented a wealthy family with real estate holdings in South Florida. The bidders presented a $525 million cash offer, including a potential $330 million in financing from an investment bank. That group said it had several million dollars available in an escrow account for a deposit on the Aladdin.
After a flurry of cell phone calls that afternoon, Meruelo's attorney John O'Reilly told Jones he was close to rounding up another few million dollars for a deposit, though not the entire amount required. He also raised the group's cash offer to $530 million in newly financed cash, thus paying off the lenders and preventing them from having to finance a deal.
"They're not operating with OPM -- other people's money," O'Reilly said.
O'Reilly suggested that Planet Hollywood and Alter's Asian-themed proposal might not be the right fit for the Aladdin and the all-cash feature of his client's offer had merit.
In the standing-room-only courtroom, O'Reilly said themed properties, such as the Aladdin's Middle Eastern look, can grow tiresome and even offensive to tourists.
"Steve Wynn said it the best -- theming is out," he said.
Planet Hollywood's checkered past -- including two bankruptcies and its failed sports-theme restaurant, the Official All Star Cafe -- should give the court pause, O'Reilly added.
While many Planet Hollywood restaurants worldwide were closed when the company filed for bankruptcy protection in 1998 and 2001, a restaurant at the Forum Shops at Caesars remains open.
The restaurant chain built its reputation on Earl's association with several Hollywood celebrities, including actors Bruce Willis, Demi Moore, Arnold Schwarzenegger and Sylvester Stallone. The All Star Cafe also had a celebrity connection -- with athletes -- and some of those investors included Andre Agassi, Shaquille O'Neal and Wayne Gretzky.
The All Star Cafe at the Showcase mall in Las Vegas closed in late 1999, putting 100 people out of work and leaving a trail of unpaid debts throughout the community.
A third potential bidder, Barron Gaming LLC, had no official offer to present Friday but requested time during a break to talk with other bidders on a possible joint venture. By late afternoon, Barron Gaming ultimately dropped out of the bidding process. A fourth bidder, Don Galloway & Associates Inc., had contacted Aladdin creditors before Tuesday's deadline but did not present a proposal Friday.
Major creditors groups at court Friday urged Jones to select OpBiz, saying the group had presented a firm offer compared with the financial uncertainties of the two competing bids.
The 18-month bidding process was well-advertised, creditors said, giving bidders plenty of time to try and hammer out agreements. Creditors met with both Alter's group and Meruelo Group representatives over the past several months without meaningful results, they said.
Michael Solow, an attorney for the secured creditors' group, said he had not received a purchase proposal from Alter's group until Thursday afternoon, past Tuesday's deadline. Solow said he was receiving documentation from Meruelo Group up until late Thursday night and still has no record of a deposit.
"We have a great deal of respect for Marriott" but the Alter deal has "too many uncertainties," he said.
That Marriott doesn't yet have a management deal is "extremely troubling," he added.
The Meruelo group is "obviously people of substantial net worth" but hasn't offered a firm bid, he said.
"Most of their holdings are in real estate, not cash," a likely reason why the group wasn't able to cough up the deposit by the deadline, he said.
"Here we are with a deposit and no offer and another group with no deposit and an offer," added Candace Carlyon, an attorney for a second creditor group, General Electric Capital Corp.
"We don't want to lose the bird in the hand," she said.
After the presentations by bidders and creditors, Jones said his decision wasn't a difficult one.
"The bottom line here is what the (creditors) want," he said. "I'm obliged to accept (the creditors') analysis ... that the risk on these other bids is too high," he said.
Alter's slightly better bid, which included $45 million in cash upfront, wasn't enough to offset the risk involved in having no management agreement, he said. Meruelo Group had a significantly higher cash bid but still no cash deposit and contingencies involved in financing the largest chunk of that money, he said.
Nearly lost in the shuffle of Friday's court hearing was the Aladdin's monthly financial report for May, which showed a $6 million loss.
The company reported revenue of $24.2 million and expenses of $29.3 million and bankruptcy expenses totalling $846,814 for the month.
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