MGM Resorts International (MGM): Icahn Up To Something…Bigger Than Herbalife?

Carl Icahn is back to his old ways. After returning the money of outside investors, Icahn has been on a tear, taking part in activism at Dell, launching a powerful short squeeze against Bill Ackman, and participating in more deals now than in any period in recent memory.

Icahn isn’t afraid of the limelight. He’s been the loudest when it comes to Herbalife. But what he’s doing quietly is much more interesting. Behind the scenes, Icahn is slowly getting back into his old game – casino operators.

Tropicana (NASDAQOTH:TPCA)

Icahn silently acquired much of Tropicana Entertainment when it went into bankruptcy, tossed a heavy $2.5 billion debt burden, and delivered near-control ownership to Carl Icahn in the process. Then Icahn bought more, and more, and more of the casino. He now owns more than 70% of outstanding shares.

Tropicana may be a small casino operator, but it has significant assets holding down the valuation. The company owns casinos in Nevada, New Jersey, Louisiana, Mississippi, Indiana, and Aruba – all of which are essentially paid-for with cash. Debt used to acquire and build each property disappeared in a 2010 bankruptcy.

Tropicana does very well in less competitive, regional gambling plays. From the company’s latest 10-K, one can see why Tropicana has no need to get competitive – Atlantic City is a drag, but its other casinos are remarkably profitable:

Justifying its current valuation are real assets that give the company serious insulation from a slowdown in travel. Its riverboat in Evansville Indiana may soon get the chance to move on the 50 acres of land the company owns in a move that would strangle water-based competition and give the company lower operating costs. (The central casinos are already the most profitable, so cost-savings would only extend their lead.)

Tropicana has more than 6,000 hotel rooms and 380,000 square feet of casino space, most of which rests in and on land and buildings owned by the company:

No developer could ever license, build, and develop these 8 properties anywhere close to the cost of simply buying out Tropicana. The company claims a $700 million property tax appraisal for 2013 in its latest annual report.