CSDS looks forward to merger with Aristocrat

January 23, 2001 9:04 AM
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Combining Las Vegas-based Casino Data Systems (CSDS) with Australian giant Aristrocrat will create one of the world’s largest gaming companies, CSDS founder and chairman Steve Weiss said in conference call Monday.

In his view, he said, the combination of the two companies is in the best interests of CSDS shareholders because of the potential for growth; Aristocrat, because of the ease of entry into U.S. markets; CSDS employees, because of the future the new company will provide; and the gaming industry, because it "will continue the quality, the innovation and excellence that CSDS has provided."

Casino Data Systems agreed last week to be acquired by Aristocrat for $9.25 a share, a total of about $180 million for the company.

Weiss said he hoped the transaction could be completed within four months, but definitely within six months. He listed certain requirements that would precede the sale consummation. These included approval from the SEC, regulatory bodies in Nevada, New Jersey, Mississippi, Missouri, and other jurisdictions in which the companies do business, and a positive vote of the shareholders.

On a personal note, Weiss said he would stay with the company through the transition, but "I have no plans after that," indicating he would not be staying with the combined companies.

Revenue concerns

Pre-announcements by some of the major gaming companies and a slackening of business in the Las Vegas market in the final quarter of 2000 has caused Robin Farley, gaming analyst with UBS Warburg to take a cautious view of 2001.

She said that when the fourth quarter news comes in, she expects conference calls to be filled with news about snow in the Midwest, New Year’s Eve blizzards and slowing Las Vegas trends.

Because of these concerns, Farley has rated the four largest casino companies – MGM MIRAGE Inc. (MGG), Park Place Entertainment Inc. (PPE), Harrah’s Entertainment Inc. (HET), and Mandalay Resort Group (MBG) – as "Hold" while placing a "Buy" rating on Station Casinos Inc. (STN).

Although MGM MIRAGE has pre-released its earnings numbers as between 40 cents and 44 cents a share before adjustments, Farley said she had expected better. "Given the favorable calendar, with New Year’s Eve weekend in the fourth quarter versus the first quarter of last year, we would expect high end volumes to be above (the reported) levels," she said.

Station Casinos, she noted, has eliminated its problem properties in Missouri and has acquired both the Fiesta and Santa Fe in Las Vegas. And, although the company has expressed concern about the transition of capital from Missouri to Nevada, Farley says, "If there are going to be integration problems, management has probably identified them at this point, and we would hear about them on the (next conference) call. If we can get through the conference call without lowered guidance, then we would feel more comfortable about the likelihood of the stock being stable in the quarters ahead."

Both Park Place and Mandalay Resort have experienced weather-related weakness in some of their properties, and both will be affected by the softness of the Las Vegas market.

As for Harrah’s, she said the New Orleans casino and the Rio Suites casino issues will continue to affect (future) quarters. "The proposed New Orleans deal will still leave Harrah’s exposed to an earnings per share drag, and the Rio clearly has issues outside of luck" that need to be addressed, she said.

Upping the limits

Led by the state’s gaming regulators, Missouri will again try to get the Legislature to remove the $500 loss limit imposed as part of the original casino bill.

Not only would eliminating the limit help the state’s casino operators, but substantial monetary benefits have been outlined for state and local communities.

Speaking for the Missouri Gaming Commission, Kevin Mullaly, acting executive director, estimated the move would boost casino revenues by at least 50%. Of that, the state and local tax revenues would increase by about $200 million.

A major beneficiary would be Harrah’s Entertainment Inc. (HET), the state’s biggest gaming operator.

Switching jobs

Eyebrows were raised in Wisconsin when word was received that the head of the U.S. Bureau of Indian Affairs had resigned and would soon join a Washington, D.C., law and lobbying firm.

The surprise resulted when it was noted that Kevin Gover had first approved a bid by the Menominee Tribe for a casino in Minnesota and five days later had joined the law firm Steptoe & Johnson, which has tried to pick up the Menominee’s lobbying business.

Gover denied there was a connection between the two moves, saying he was not aware the firm was soliciting Menominee business.

Mohegans liked deal

Despite press reports that they made a bad deal in dumping their original partner, the Mohegan Tribe of Connecticut denied there was any skullduggery with one-time partner Trading Cove Associates.

The 1998 arrangement, negotiated by the Mohegans and the "best financial, legal and accounting consultants," was executed as a fair and legal deal, according to Tribal Chairman Mark Brown.

He was quoted as saying,

"Six years ago, we had a quarter-acre (of land), a church and our history. Now we have economic stability and a chance to rebuild our nation."

Last year, the tribe pocketed about $250 million in profits from its casino. However, when the expansion is completed, they project net earnings will rise to $400 million.

A.C. development

After months of speculation, MGM MIRAGE (MGG) has made it official: it will build a hotel/casino resort on the H-tract property it acquired through its merger with Mirage Resorts Inc.

Prior to the merger, then MGM Grand had planned to develop property it owned on the Boardwalk, but the project was delayed for years because of delays in eminent domain proceedings against land owners who consistently rejected reasonable offers for their miniature parcels.

Last week, Terry Lanni, MGM MIRAGE chairman, said the company would continue to enhance existing properties and review appropriate concepts for the prime Las Vegas property it owns, but the immediate focus will be Atlantic City. The new project will be adjacent to The Borgata, under construction by Boyd Gaming Inc. (BYD). The Borgata will be owned jointly by the two companies.

Earnings double

Buoyed by an almost 50 percent increase in the sale of gaming machines worldwide, International Game Technology (IGT) reported earnings of $48.2 million or 64 cents a share for the first quarter of Fiscal 2001.

The numbers compared favorably to the same period a year earlier when the company said it had income of $26.3 million or 30 cents a share.

Product sales, the company said, totaled $192.4 million for the quarter, substantially higher than last year’s $109.8 million. Domestic shipments of 15,000 machines were an increase of 79 percent over last year’s 8,400 units.

Also during the period, revenues from gaming operations set a quarterly record at $109.4 million, an increase of 13 percent over the comparable period.

In commenting on the financial results, CEO Tom Baker said, "Our games have been performing very well. We think they have been driving a replacement cycle that is really just in the early stages."

No phone bets

Penn National Gaming Corp. (PENN) has been ordered to stop taking telephone bets from New Jersey. The company was one of several ordered to cease and desist from such activity.

It doesn’t matter if it’s a New Jersey race or a race from Japan. The New Jersey state Constitution only permits pari-mutuel wagering to occur at the five permitted race tracks and permitted casinos.

Late last year, New Jersey lawmakers passed a bill that would permit account and telephone betting. The bill was vetoed by then-Gov. Christie Whitman.

Coast expansion

Now that it has successfully opened its newest property, the Suncoast Hotel/Casino, Coast Resorts Inc. has announced a $100 million expansion of its largest hotel and casino, The Orleans, on Tropicana Boulevard.

When completed in 2002, the property will have a 620-room hotel tower, a 9,000- seat arena, a 2,600-car parking garage, six more movie theaters, two new restaurants and an Irish Pub. That will be in addition to 40,000 square feet of casino and public space for future use.

The two restaurants and the Irish Pub, already under construction, are expected to be completed by the second quarter of this year. Famed restaurateur Gustav Mauler will operate an Italian family-style restaurant, Sazio Bryan and Diana Do of Houston, Texas, will operated Koto, which will feature both Chinese and Japanese-styled food.

Tribes opposed

State and local officials in Connecticut have gone to court to stop federal recognition of two Indian tribes they say have been illegally recognized.

Eastern Pequots and the Paucatuck Eastern Pequot Indians were granted recognition. Still awaiting approval are the Schaghticokes of Kent, Conn.

Atty. Gen. Richard Blumenthal characterized top officials of the Bureau of Indian Affairs, which granted the recognition, as "rogue bureaucrats operating beyond the bounds of the law, implementing their personal political agendas without proper supervision."

Now that the tribes have been officially recognized, they could (if they wish) negotiate gaming compacts with state officials. Currently operating two of the world’s most successful casinos are the Mashantucket Pequots and Mohegan Tribes.

THE INSIDER

November sales by Nevada merchants were up 3.3% in November, according to the Dept. of Taxation. In Las Vegas, sales totaled $1.77 billion, for a 4.1% increase.

The Borgata, the casino resort being built by Boyd Gaming Inc. (BYD) in Atlantic City, has signed a 20-year contract with Marina Energy, LLC, for electricity, heat, hot water and cooling via a $40 million plant, which will use natural gas.

GTECH Inc. (GTK), the troubled lottery services supplier, has come under review by lawmakers in Kansas. They are studying whether the lottery law should be extended beyond 2002. GTECH has been providing equipment and services to the Kansas Lottery since it began.

Moody’s Investors Service has assigned a Ba2 rating to the new $300 million notes to be issued by MGM MIRAGE (MGG).

Operations continued in the red for Paul-Son Gaming Corporation (PSON) in its second fiscal quarter. The company reported a net loss of 14 cents a share for the period compared to a loss of 33 cents a share for the corresponding period a year ago.

International Lottery & Totalizator Systems Inc. (ITSI) avoided a costly lawsuit when Global Technologies Ltd. agreed to return a portion of the wagering equipment owned by ITSI. The company said it would now reverse an earnings charge taken in the third quarter.

With Wisconsin Gov. Tommy Thompson moving to Washington, D.C., as a member of President George W. Bush’s cabinet, all eyes have been on his successor, Lt. Gov. Scott McCallum. Particularly concerned are tribal interests, who seek to build casinos in three separate areas. McCallum adamantly opposes expansion of gambling in his state.

Looking to stimulate more growth in the number of hotel rooms in Atlantic City, a state senator has come up with a sales-tax credit plan to assist existing casinos. The plan has received the unanimous approval of the gaming community.