Boyd Gaming vs. Station Casinos

Mar 3, 2009 5:06 PM
by David Stratton |

Analysts split over viability of Boyd’s offer

In the wake of Boyd Gaming’s offer to buy Station Casinos’ assets for $950 million, reaction has ranged from "may make sense" to "risky move" to "completely laughable."

Among the analysts who believe Boyd’s offer is economically viable is JP Morgan’s Joseph Greff, who anticipates the proposed deal would add to Boyd’s earning per share and may also provide some marketing and cost savings.

On the other side of the ledger, David Katz of Oppenheimer & Co. said the move could be "risky" for Boyd because of the current uncertainty in the Las Vegas locals market, where most of Stations’ casinos are located, coupled with the company’s reduced liquidity.

"We believe the increased concentration in Las Vegas, as well as the reduced financial flexibility would be negatives for (Boyd’s) stock," Katz said in a note to investors.

Also clouding Boyd’s financial future is whether it plans to resurrect its mothballed Echelon project on the Las Vegas Strip.

Despite the dichotomy, most analysts seem to agree a lot hinges on the health and future well-being of the Las Vegas locals market.

"The locals market has clearly been knocked for a loop over the past few years as new supply compounded the negative effects of the Las Vegas housing market collapse and rising local unemployment," said Robert LaFleur of Susquehanna Financial Group. "That said, the locals market is probably closer to the end of its problems than the beginning."

Under Boyd’s proposal, it would acquire Texas Station, Santa Fe Station, Fiesta Station, the Wildfire properties, several smaller casinos and Station’s interest in Aliante Station and Green Valley Ranch, which are co-owned by the Greenspun Corporation.

Not included are Palace, Boulder, Sunset and Red Rock Station.

Those who view the offer as "laughable" are close to the highest levels of Station Casinos’ management team, which is currently trying to convince bondholders to accept a buyout under a Chapter 11 restructuring.

"All Boyd did was muddy the water," said a source close to Station’s upper management. "The board of directors at Stations believe the offer to bondholders is a fair one."

Boyd contends that its offer, which has been estimated at about 16¢ on the dollar for bondholders, is better than the pending restructuring offer from Station’s management.

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