Zenith Unit Betting on Wynn Resorts

Zenith National Insurance Corp. Chairman Stanley Zax, who helped run the Las Vegas Hilton more than three decades ago, offers this advice on placing a bet: Back a proven winner, especially when the odds improve.

Zax said Tuesday that Zenith’s operating subsidiary spent $13 million to buy 1 million shares of Wynn Resorts Ltd., which will build Le Reve, a $2.4-billion hotel-casino that is the latest venture of Las Vegas veteran and longtime Zax pal Steve Wynn.

It’s a significant addition to Woodland Hills-based Zenith’s common-stock holdings, which totaled $32 million as of June 30, though the investment is dwarfed by the firm’s $900 million in bond holdings.

Wynn’s latest resort, on the Las Vegas Strip site of the old Desert Inn, will include an eight-story “mountain,” a Ferrari and Maserati dealership, a gallery to display Wynn’s art collection and an 18-hole golf course.

Wynn, who developed the Mirage, Bellagio and Treasure Island properties, had to trim Wynn Resorts’ initial public offering price more than 40% last week after skittish investors balked at Le Reve’s three-year construction schedule and over-the-top features.

But Zax, in an interview, said he’s convinced that, at $13 a share, “the price was attractive for a long-term investment in Las Vegas with a compelling tale.” Zenith’s purchase was nearly 2.9% of the total 34.6 million shares Wynn sold.

Zax said 35 years of studying the desert boom town has taught him some important lessons: “One, Steve Wynn proved he can make money there. And second, major new hotels have always done well there, as first proved by Kirk Kerkorian,” the wheeler-dealer who sold Hilton its first Las Vegas hotels in 1970.

In a deal in which Zax served as Wynn’s consultant, Kerkorian’s MGM Grand Inc. bought Wynn’s Mirage Resorts Inc. for $6.4 billion in 2000.

“Kirk is the only other guy like Steve,” Zax said.

Wynn was a wine distributor in Las Vegas in the 1960s when his path first crossed that of Zax, who at the time was general counsel of Hilton Hotels Corp. While Wynn pushed beverages, Zax helped Hilton digest its purchase of the former Flamingo hotel-casino from Kerkorian.

In the 1980s, Wynn, then chairman of Golden Nugget Inc., needed $100 million to build a hotel-casino in Atlantic City, N.J. It was Zax who helped him out by introducing Wynn to “junk” bond financier Michael Milken, a second cousin to Zax.

Zenith this month completed the sale of its 9-year-old real estate company in Las Vegas for $65 million. Zax described that deal as freeing up funds to support growth of Zenith, a workers’ compensation insurance specialist, and to make another equity bet in Las Vegas on his old friend Wynn. Zax serves on Wynn Resorts’ board.

The performance of Zenith’s investment portfolio is important because it backs up the company’s ability to pay claims. Zenith has been profitable this year after recording losses in much of the last three years. Rising premiums have helped boost profits across the insurance industry since last year’s terrorist attacks.

Zax is hopeful he’ll come up a big winner in Wynn’s company, but with Le Reve not scheduled to open until 2005, he acknowledges it’s no sure thing.

Wynn shares fell 37 cents to $12.64 on Nasdaq on Tuesday. Zenith shares rose 5 cents to $28.65 on the New York Stock Exchange.