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Mar. 04, 2009
Copyright © Las Vegas Review-Journal

Station Casinos refuses Boyd offer

Company to proceed with restructuring plan

By ARNOLD M. KNIGHTLY
LAS VEGAS review-journal

Green Valley Ranch Resort, shown in 2005, is among the Southern Nevada properties that Boyd Gaming Corp. sought to pay $950 million to acquire from locals gaming rival Station Casinos.
Photo by Gary Thompson.

Station Casinos' board of directors on Tuesday officially rejected Boyd Gaming Corp.'s unsolicited $950 million offer for a majority of Station's assets.

It is "in the best interest of the company and its stakeholders to proceed with the company's restructuring plan," Station said in a letter sent to its main rival in the locals gaming industry.

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    • Rob Stillwell, Boyd's vice president of corporate communications, said the company will respond to Station's rejection letter today.

    But he said Tuesday afternoon that "we remain interested in acquiring some or all of the assets of Station Casinos."

    Bill Lerner, a gaming analyst with Deutsche Bank, said Station's rejection of the buyout offer makes sense.

    "The reasoning on why they rejected this current offer makes sense to me," Lerner said. "They feel there is notable risk that the deal might not close, and if that happens, they've disrupted the prepackaged proposal, and that changes everything."

    On Feb. 2, Station announced a "prepackaged" bankruptcy plan that would give bondholders who hold $2.3 billion of Station's debt between 10 cents and 50 cents on the dollar in new notes and cash.

    Under Station's plan, the company would enter into a voluntary Chapter 11 bankruptcy and the gaming company's owners -- the Fertitta family and real estate investment firm Colony Capital -- would put $244 million in cash into the company.

    An earlier debt exchange was rejected by bondholders in November. That proposal did not include any kind of cash infusion by the company's owners.

    Station's rejection came on the same day that the company announced it had reached agreements with most of its debt holders to extend a deadline to vote on the company's bankruptcy proposal.

    The agreements "will provide the company with additional time to continue discussions regarding terms of its plan of reorganization," Stations said in a statement.

    The agreement gives Station and its debt holders until April 10 to vote on the proposed debt swap and restructuring.

    The agreement was signed hours prior to Monday's midnight deadline for the bondholders to vote on the restructuring plan.

    Mike Sullivan, a finance professor at the University of Nevada, Las Vegas, said Boyd Gaming's offer made Station's deal less attractive for bondholders.

    "Station is asking bondholders for another month to figure things out," Sullivan said. "I suspect (Station Casinos) will sweeten the pot a little bit, if they can."

    Lerner suggested Station might have rejected the buyout offer because it could be "hypersensitive" to sharing company finances and other confidential information with its biggest competitor in today's economic environment.

    Boyd Gaming, however, could come back with another offer that addresses some of Station's concerns, Lerner said.

    He said Station's board will judge offers based on what's best for the company, not what's best for the Fertitta family, which founded the company in 1976 and owns 25 percent of the company but controls three of the board's five seats.

    The letter to Boyd Gaming, signed by Chairman and Chief Executive Officer Frank Fertitta III, said Station will not take "any steps towards pursuing, a sale of all or any portion of the company's assets."

    Station Casinos owns 13 casino properties -- including Red Rock Resort, Sunset Station, Palace Station and Boulder Station -- in Clark County.

    The company is also partner in five 50-50 joint ventures with Greenspun Corp., including Green Valley Ranch and the newly opened Aliante Station in North Las Vegas.

    Boyd offered to buy Santa Fe Station, Texas Station, the 94-acre Wild Wild West site on Tropicana Avenue west of Interstate 15, two Fiesta properties, the Greenspun joint ventures and several nonhotel casinos.

    The deal would leave Station Casinos with four hotel-casinos carrying $2.5 billion of debt.

    Station Casinos cited the "highly conditional nature" of Boyd Gaming's offer, as well as the risks "in sharing sensitive and confidential information with a significant competitor" and potential harm to "stakeholders" as reasons for rejecting the offer.

    "The board also considered the potential harm that would result to the company's stakeholders if such a proposal was delayed or could not be completed," the letter read.

    The letter, addressed to Boyd Gaming Executive Chairman Bill Boyd and CEO and President Keith Smith, expressed concern about "Boyd's potential inability to perform due to its own financial position."

    Boyd Gaming closed trading Tuesday at $3.69 on the New York Stock Exchange, down 9 cents, or 2.38 percent. Shares of Boyd were trading at $26.25 a year ago before falling to $2.81 during last November's stock market crash.

    Boyd Gaming posted a net loss of $223 million last year, driven by 12.1 percent decrease in revenues to $1.8 billion from $2 billion in 2007.

    Boyd Gaming now has a $2.6 billion debt load, $2.1 billion of which doesn't mature until 2012.

    Boyd Gaming operates nine casinos in Las Vegas and Henderson including Sam's Town on Boulder Highway, the Suncoast in Summerlin and The Orleans on Tropicana Avenue.

    The company also owns six properties in Louisiana, Mississippi, Illinois and Indiana, and has a 50 percent stake in the Borgata in Atlantic City.

    The terms of Station's new forbearance agreement, which expires April 15, reveal the company skipped its third debt payment in a month.

    The agreement, however, prevents bondholders from declaring default on the missed payments -- a $24 million debt payment due March 1 with a 30-day grace period to March 31, along with $14.6 million and $15.5 million payments skipped in February -- prior to April 15 when the forbearance agreement expires.

    Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.

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    SHARON wrote on March 05, 2009 08:57 AM: WE HAVE BYD STOCK,ALWAYS MAKE MONEY ON IT.WAS PLANNING ON THEM BUYING STATIONS.


    Cynical wrote on March 04, 2009 03:42 PM: Ken- You're right. Since the govt (Prez & Congress) doesn't look at gaming as "too big to fail" (and they shouldn't or any other industry for that matter) many of these companies will look drastically different in the coming years. What's so hypocritical is that Obama came to this city and looked thousands of his base (union employees) in the eye and said he'd fight for them. Within 20 days of taking office, the Prez told people not to come to LV. That's minor compared to the barriers to business his policies will and do impose.

    PS. If Stations can't print money to stay afloat, why does the US Govt and Fed Bank think they can? This country is in trouble....


    ...Temujin.. wrote on March 04, 2009 12:34 PM: .
    ..
    ...Yes for the year 2007...


    ...Temujin...Khan..of..the..Yakka..Mongols... wrote on March 04, 2009 12:31 PM: ....Stations...total..income..

    ........Salary....Options..Cost to company

    ...f. fertita.2.3/ 122.4/ 185.5
    ...l. fertita..1.8/ 111.5/ 180.5
    ...b. warner..1.2/ 47.6/ 22.9
    ...s. nielson..960k/ 40.5/ 15.2
    ...g christenson..255k/ 33.7/ 14.1
    ...r. haskins..660k/ 18.3/ 16.4
    ...t. friel..466.250k5.7/ 3.4


    Ken wrote on March 04, 2009 12:10 PM: Some of you are wrong on the Boyd offer. It's a win-win for Boyd. Had Stations gone for this it would have been a sweet pickup of most of Stations at a firesale price. The fact that this got press and Stations did not go for it makes Boyd look stronger and magnifies just how bad things are for Stations.

    Look, it is just a matter of time before Stations goes under. They cannot print money and they cannot get out from under this mountain of debt. Banks can see that Stations, MGM, Riviera and at some point, Harrahs and Boyds are all going to be cash broke. The large banks have too many other industries on their plate to care about gaming. And Harry Reid doesn't care about Vegas anymore.

    If Obama gets away with his tax hikes on all Americans and drags this recession into 2011, expect the Strip to become a ghost town.

    Everyone will be at the South Point since Michael Gaughan was smart enough to trade Boyd stock for the building and is carrying little, if any debt.


    Anthony wrote on March 04, 2009 11:31 AM: Temujin...Khan..of..the..Yakka..Mongols - Is that compensation list for the year ending 2007 (article is dated June 2008)? I read an article that said the Fertitta's had a low base salary in comparison to other executives in town, however they had a HUGE compensation package (tied to stock at the time) that accounted for their large paychecks.


    Anthony wrote on March 04, 2009 11:22 AM: foo bar....The Boyd offer was marginally better for the bind holders. However it was a low ball offer from Boyd and they knew that. Paco...Look at Boyd's earnings, they are not doing great. Just as bad as everybody elses in town. They just happen to have $2 billion in credit available to them. Not even sure their stockholders would approve them spending $950 million to buy more properties in this economy.


    ...Temujin...Khan..of..the..Yakka..Mongols... wrote on March 04, 2009 11:20 AM: .
    ..
    ...Las Vegas Sun June 16, 2008...

    ....Highest Paid Executives....

    ........Total Compensation.....

    ...Fran Fertitta Ceo Stations 125.9
    million
    ...Loenzo Fertitta President Stations 113 million
    ...Bill Warner "FORMER" EVP, COO Stations 49.2 million
    ...Scott Nielson EVP,chief development officer 41.6 million
    ...Glenn Christenson "FORMER" CFO and chief administrative officer Stations 34.1 million
    ...Richard Haskins EVP, general counsel Stations 22.7 million
    ...Thomas Friel chief accountatin officer Stations 6.5 million


    Cynical wrote on March 04, 2009 11:14 AM: This is business as usual for big business. The original govt bailout is called bankruptcy court. Trump has done it a few times and is doing it again with the Taj. Big companies get over extended and the court allows them to renegotiate the terms of their financing (lower interest). There was never a need for these other bailouts from the govt, its why Ch 7 and Ch 11 exist. Stations will continue to own the locals market and Boyd will continue to operate grind houses.


    fred t wrote on March 04, 2009 11:02 AM: Instead of accepting Boyd's offer, Stations will tighten their slot machines to the minimum 74% payout, and will suspend giving away Chinese junk on Saturdays . Best of luck to the Stations losers-oops customers...


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