Trump Hotels & Casino Resorts,
Following the recapitalization, the banking subsidiary, DLJ Merchant Banking, will become the majority owner of Trump Hotels, which is to be renamed Trump International Corporation. Donald Trump would remain a substantial shareholder and remain CEO and chairman. His ownership of the company would be reduced from the current 53% to a reported 20% stake.
Trump isn't ceding control because things are going well. Trump Hotels just reported its fourth-quarter and full-year 2003 results (income statement only -- yikes!) and showed lower revenues across the board for its casino properties. In particular, the Atlantic City properties struggled, caused in part by the increased competition from the new, massive Borgata resort, owned jointly by Boyd Gaming
But Trump is nothing if not a survivor, having endured far worse corporate conditions than the one Trump Hotels presently faces. There's an easy solution when the debt levels are too high: Cram down the debtors. When I say "easy," what I really mean is "extremely difficult," but on paper it looks easy enough. The DLJ money is contingent upon Trump's being able to negotiate a purchase price below face value for several outstanding series of mortgage debt. This is tantamount to a default on the debt, and the announcement of this term prompted Moody's
The deal also depends upon the company being able to negotiate DLJ's purchase of common stock under certain parameters -- read: "a low enough price." What this means is that you can expect no promotional activity from Trump and no attempts to defend the company's share price, because a lower share price soon may equal substantially better overall position down the road.
Much of the $400 million would be used to fend off the debt wolves, but the plan also opens up the opportunity for more global expansion of the company. I doubt it stretches the imagination to picture Donald Trump levering the company's balance sheet back up again. It's other people's money, after all.
While the recapitalization will substantially help the company's current position, history suggests that the whiff of global expansion will be too enticing for Trump to play it safer this time around. Even though he would no longer own the majority of the company's stock, it's still his name on the door of the executive offices, the washroom, the properties, the corporate jet, and so on down to the hand towels and matchbooks. It's also his "magic" that people buy into.
So, he doesn't need to fear that ceding equity control means that he's going to have to hear those dreaded words: