High & Low Finance
Donald J. Trump, the man who wrote “The Art of the Deal,” failed to make a deal this week, and his casino company’s shareholders are suffering. Again.
Mr. Trump grew famous as a real estate developer, and some people still think that an apartment with his name is worth more than one without it. He became a television star in “The Apprentice,” where his main contribution was to say to contestants competing for the right to work for him, “You’re fired.”
That played on his strength, as was shown again this week when his casino company, Trump Entertainment, reported it had fired two executive vice presidents.
But when it comes to running operating businesses, he has been something less than a resounding success. The Plaza Hotel in Manhattan went bankrupt under his tutelage, and his casino empire has been under bankruptcy protection twice, in the early 1990s and again this decade.
Mr. Trump has proved to be a fine negotiator in bankruptcy. In the last round, he got a large stock position in the reorganized company in return for giving the company a license to use the name it already had: Trump. He also put in some cash, and the courts turned aside pleas from angry investors whose stakes were being wiped out.
With no buyer in sight, shares in Trump Entertainment fell to less than $11 this week, well below the $14.60 value assumed in the bankruptcy reorganization. Trump bonds also lost value.
Losses for shareholders are nothing new in the Trump empire. Trump Entertainment’s predecessor company, Trump Hotels and Casino Resorts, went public, owning just two of Mr. Trump’s casinos, in June 1995. The shares did well for a time, but plunged after deals in which Mr. Trump sold his two other casinos to the company, at prices some deemed excessive.
When the company went into reorganization, the old shares were all but wiped out. Each share, which cost $14 at the initial public offering, got 88 cents in a cash distribution, and one-thousandth of a share in the new company. Shareholders also got warrants to buy new shares at $14.60. If they exercised the warrants, which have since expired, they have new losses.
All told, ignoring the warrants, a shareholder who invested $10,000 in Mr. Trump’s empire when the casino company went public in 1994 would now have about $636.
That performance came at a time when the casino industry was blossoming across America, as more states accepted more gambling as a way to raise revenues.
I counted five other casino companies that went public in the mid-1990s. All made money for investors in the initial offering. The champion was Penn National Gaming, which will take your bets in West Virginia, Pennsylvania, Mississippi, Louisiana and in Ontario. It went public in 1994, and a $10,000 investment would now be worth about $724,000.
Over all, an index of casino stocks is up 268 percent since June 1995. Trump investors lost 93 percent.
Why did they do so badly? Mr. Trump has an explanation. “The company has always been a relatively high-debt company,” he told me, and when it needed money the bond markets were not always friendly.
He has a point. Trump casinos were sometimes starved for capital investment, and they showed it. And while others expanded into new areas as markets opened up, Trump went only to Indiana, and its casino there was sold in 2005 to raise money. Recent efforts to expand into Pennsylvania, Mississippi and Rhode Island went nowhere.
The company now has a $250 million investment program to improve its Atlantic City hotels and casinos, and is spending a similar amount for a new tower at the Trump Taj Mahal.
“The places are starting to really look well,” said Mark Juliano, who became the interim chief executive this week, after his predecessor retired, the company said, to “return to his family in California.”
“The refurbishment is going along nicely,” Mr. Juliano added. “We are looking forward to a great summer.”
But there may be more than capital problems and run-down buildings at work in the sad performance.
Trump’s companies are very complicated, with partnerships all over the place. At best, such complexity contributes to doubts that the boss has the same interests as public investors. Had a buyer been found, Trump Entertainment could have owed Mr. Trump up to $100 million to offset his capital gains taxes.
The two years since Trump Entertainment came out of bankruptcy have been good ones for owners of most casino companies. But not for this one. Mr. Trump’s name is, again, associated with a losing investment.
