Ron Perelman: Vegas Or Bust?

Financier Ron Perelman is known on the Street as a cunning predator. So since he applied for a license to buy a casino in Atlantic City, the betting on which company he is after has been heavy.

Is he out to snare an operator with just a New Jersey presence? Or is the application a first step--as some insist--toward Las Vegas?

Analysts say Atlantic City is the easy route to a Vegas license, since Nevada's gaming commission looks favorably on those who already own one there.

Several highly visible Las Vegas companies are rumored to be Perelman targets, including Hilton Hotels, which owns five Nevada casino-hotels and several regular hotels, such as New York's Waldorf-Astoria. But Hilton's $1 billion debt and steep market valuation, they argue, might be a turn-off for Perelman, chairman and controlling shareholder of Revlon and Marvel Entertainment Group.

In fact, whisper several Vegas insiders, Circus Circus Enterprises (CIR) is No.1 on Perelman's list: Its market valuation is among the lowest in the group, based on strong cash flow, modest price-earnings ratio, and massive holdings: eight Las Vegas gaming properties, totaling 13,660 hotel rooms and 596,000 square feet of casino space. Trading at 24, the shares sell at a 20% discount to the group's average p-e ratio. And Circus' debt is less than half its capitalization. Its return on average equity, about 24%, and its projected return on assets, nearly 10%, outshine its peers. "Moreover, the company has the highest operating margins in the industry for a company its size," notes analyst Dan Davila of J.W. Charles Securities, who believes Circus Circus is likely to be the next gaming company bought out after Caesars World--which ITT has agreed to acquire. Davila puts the takeover value of Circus at 35. Perelman declined comment.

Perelman isn't the only party eyeing Circus Circus, one buyout pro says. Financier Marvin Davis and a group including Richard Rainwater are also rumored to have expressed interest. He says both outfits have talked informally with Circus. Circus Chief Financial Officer Daniel Copp declined comment.

"It is clear," says Oppenheimer's Steve Eisenberg, that Perelman--like Davis, who recently got a license for both Atlantic City and Las Vegas--"is now looking at gaming in a much different light." Eisenberg ranks Circus Circus among the most attractive takeover bets. When savvy entrepreneurs such as Perelman and Davis "go under the hot lights to apply for a gaming license," Eisenberg says, it means the industry is on the threshold of an important new stage.

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