Fertitta Family offers $82 per
share but market raises price

Dec 5, 2006 4:21 AM

Even when Bingo Palace was evolving into Palace Station and later into Station Casinos Inc. (STN), it was a family affair. Founder Frank Fertitta, Jr., placed his son, Frank Fertitta, III, in charge as CEO.

The family atmosphere grew as daughter, Delise and her husband, Blake Sartini, took management roles and eventually, son Lorenzo, joined the group as president.

So it was no surprise on Monday when the Fertitta family announced that it was joining with the real estate/gaming investment firm of Colony Capital in a bid to take their company private.

The offer was for $82 per share, a 19% premium on the previous closing price of $69.10 per share.

Analysts differed on whether the offering was excessive since it amounted to 11.8 times 2007 projected EBITDA (earnings before interest, taxes, depreciation and amortization). Supporters, however, suggested that the $4.7 billion buyout was within reason when the company’s real estate holdings and its involvement in the openings of Native American casinos planned for 2007 were factored into the equation.

The buyout bid will be evaluated by a special committee of independent directors, the company said.

The new name, if the buyout is approved, will be Fertitta Colony Partners. The group will be receiving financial assistance from the two brothers, both large company stockholders; sister and brother-in-law Delise and Blake Sartini and the investing unit of Colony Capital.

Financing arrangements will come from Deutsche Bank Trust and German American Capital.

Some analysts felt the announcement could trigger additional interest from other equity groups looking to enter the cash-rich casino business. Celeste Mellet Brown of Morgan Stanley said she felt the buyout offer suggested the stock was worth between $90 and $100 and could bring pressure for a higher bid.

"While we wouldn’t rule out another offer, it would be difficult to match a bid including management," she wrote in a client note. She also hinted that the offer could get others looking toward Boyd Gaming Corp. (BYD) as a takeover target.

However, Jeff Logsdon of BMO Capital Markets, said he felt the price was a fair one.

"Although a bid for Station could go higher, minority shareholders would have to make a convincing argument that the company’s land holdings value is higher than management’s estimates, a factor which has a low probability," he wrote.

Mathew Jacob of Majestic Research said there "had been some speculation that Station could be a target for a private equity (offer)”¦it seems to be a trend in the industry."

Recently, a number of Wall Streeters have suggested that Boyd would be targeted because of the company’s largest real estate holdings on the coveted Las Vegas Strip.

The Monday announcement set off a buying frenzy among gaming company investors who responded by pushing the price of Station Casinos shares above the buyout price. At the conclusion of trading on Monday, STN had reached a price of $84.68, an increase of $15.58 for the day.

Boyd Gaming saw its share price rise to $46.70 per share, or $4.70 higher for the day. Others impacted included: MGM MIRAGE Inc. (MGM), whose principal shareholder, Kirk Kerkorian, said he would buy 15 million shares at $55 each, saw its price rise to $56.35, up $2.68; Ameristar Casinos Inc. (ASCA), $33, up $2.67, and Isle of Capri Casinos Inc. (ISLE), $31.30, up $2.10 per share.

Las Vegas Sands Corp. (LVS) saw its shares skyrocket to $97 per share, a boost of $6.30 for the day, following the announcement of a move to begin an Internet gaming site in England. And, although there was no news from Wynn Resorts Ltd. (WYNN), its share price rose $4.76 to $92.30.

Station Casinos Inc. operates 10 neighborhood casinos in the Las Vegas area including the recently-opened Red Rock Casino Resort. It also is part owner in the Green Valley Ranch Station Casino in Henderson; holds a 6.25% interest in the Maloof Family’s Palm Casino, and manages Thunder Valley Casino near Sacramento, Cal., on behalf of the United Auburn Indian Tribe.

Colony Capital has been active in the gaming industry these past few years, having acquired the Las Vegas Hilton for $280 million, and four casinos from Harrah’s Entertainment Inc. (HET) for $1.24 billion. These included Harrah’s East Chicago Casino, Harrah’s Tunica, Miss., Atlantic City Hilton and Bally’s Tunica. The company also owns the Resorts Hotel/Casino in Atlantic City and operates its gaming facilities under the corporate name of Resorts International Holdings.

Two months ago, the private equity firms of Apollo Management and Texas Pacific Group offered to buy out Harrah’s Entertainment for $83.50 a share, a bid that is being evaluated by a special committee of directors. And, earlier this year, Kerzner International Inc. (KZL) was taken private by founder Sol Kerzner and his partners.

UK move

While some British companies have elected to shut down rather than face the prospects of operating with U.S. cash, Las Vegas Sands Corp. (LVS) plans to create an online Internet wagering site off the British coast.

On Monday, the company announced it was forming a partnership with Cantor Gaming, a division of financial services giant Cantor Fitzgerald, to launch an online casino and poker site initially aimed at serving the United Kingdom market.

This will be the second affiliation with Cantor Gaming for Las Vegas Sands. Earlier this year, the two announced it had plans to have The Venetian become the first Nevada casino to provide mobile gaming based on Cantor technology.

The Internet site will offer the most popular casino games, including blackjack, roulette, baccarat, video poker, slots and online poker, the company said. The company added that the online casino will be part of a full end-to-end gaming service, including customer age and location verification, online payment processing, and customer services. It expects to be operating in the second quarter of 2007.

MGM MIRAGE Inc. (MGM) attempted a similar operation a few years ago but shut down the site because of its inability to benefit from U.S. gamblers since the federal government has branded such online activity as illegal.

Kirk’s offer

Kirk Kerkorian’s Tracinda Corp., flush with cash from the recent sale of millions of shares in automaker General Motors, on Monday launched a cash tender offer to acquire 15 million additional shares of MGM MIRAGE Inc. (MGM).

The offer of $55 per share, announced on Nov. 21 when the shares were selling for $49 each, will increase Kerkorian’s stake in the company to 61.1% from the current 55.9%.

Kerkorian, 89, made a purposeful effort to influence GM’s management, even to having an associate named to the company’s board of directors. However, after months of frustration with the automaker’s board, he decided to pack it in and sell off his $1.7 billion investment.

THE INSIDER: Churchill Downs Inc. (CHDN) announced it plans to reduce the company’s full-time corporate workforce by 30% beginning next spring. At least 22 full-time positions will be eliminated.

Melco PBL Entertainment, the joint venture between James Packer’s Publishing & Broadcasting Ltd. and Lawrence Ho’s Melco International Development Ltd., has filed a registration statement for its U.S. initial public offering. The partners plan to offer 53 million American Depositary Shares to be traded on the Nasdaq.

Shuffle Master Inc. (SHFL) has closed on a $100 million revolving credit facility that was jointly arranged by Deutsche Bank Securities and Wells Fargo bank.

Harrah’s Entertainment Inc. (HET) has been ordered to pay $30 million to the Pauma Bank of Luiseno Mission Indians for interfering in the tribe’s efforts to build a casino.