$2.25 Billion Bid is Third Buyout Proposal for Owner of Tropicana - Tuesday 4th of April 2006

by Howard Stutz

Las Vegas Gaming Wire

An aging lady that couldn't get a date for more than a year now has a full dance card.

Las Vegas-based Ameristar Casinos on Monday became the third gaming company submitting a proposal to acquire Aztar Corp., bidding $42 a share, or $2.25 billion, for the owner of the timeworn Tropicana.

Ameristar, which doesn't own a casino in Las Vegas, offered $1 more per share than Las Vegas Hilton owner Colony Capital, which reportedly submitted a bid for Phoenix-based Aztar last week.

On March 13, Pinnacle Entertainment entered an agreement with Aztar's board of directors to buy the five-casino company for $38 a share, or $2.1 billion. If that deal falls through, Aztar would have to pay Pinnacle $42 million as a breakup fee and cover up to $13 million of the company's expenses.

Aztar spent almost 18 months starting and stopping on plans to redevelop the 34-acre Tropicana site. Most analysts believed Aztar was seeking either a joint-venture partner or a sale of its assets, but neither solution ever appeared until last month.

Ameristar's emergence as third bidder for Aztar surprised most gaming industry observers.

"Was this out of the blue? Absolutely," CRT Capital Group analyst Steve Ruggiero said.

Late Monday, Aztar issued a statement saying the company would enter discussions with both Colony Capital and Ameristar about their proposals.

Ruggiero said it was unclear if the bidding war will lead to a company overpaying for Aztar.

"It really depends on who the buyer is," Ruggiero said. "Colony has the flexibility of being a private firm and they're not worried about answering Wall Street analyst questions on a conference call. That gives them an advantage. Certainly, Pinnacle has an edge because it already has a signed agreement, but the question is who can put together best financing package and who wants it the most."

Ameristar Chairman Craig Neilsen sent a letter Sunday to Aztar Chairman Robert Haddock, explaining his company's intentions. Neilsen said that Ameristar's proposal was "clearly superior" to the offer submitted by Colony Capital and the signed deal with Pinnacle Entertainment.

"I placed a courtesy call to Bob (Haddock) last night, but he wasn't home," Neilsen said Monday following a conference call with analysts and investors to discuss the proposal. "We've looked at Aztar for sometime, but we stepped up our efforts once it went into play. There's a widely divergent view of what the assets are worth. I guess we'll stand by and see what happens."

The next move is up to Aztar's board of directors. The company's management will have to evaluate the proposals to see whether they are superior to the Pinnacle Entertainment deal.

If Aztar accepts the higher offer from Ameristar, Pinnacle Entertainment would have a right to increase its offer or accept the breakup fees. Colony Capital, a privately held real estate investment firm that owns six casinos through Resorts International, could also make another bid.

"We believe that higher bids could be likely from both Colony and Pinnacle," Deutsche Bank gaming analyst Marc Falcone said in a note to investors.

Ruggiero questioned whether Pinnacle would increase its bid; a higher offer would result in a higher leverage and financing costs to the company, he said.

Wall Street's reaction Monday seemed to lean toward a higher bid. Aztar closed up $2.61 in heavy trading on the New York Stock Exchange, finishing at $44.60, a 6.22 percent increase. Almost 5.5 million shares were traded, the third straight session Aztar volume topped 3.7 million.

Ameristar shares closed at $24.01 on the Nasdaq National Market, off $1.78, or 6.9 percent. Pinnacle Entertainment shares closed at $28.76 on the Nasdaq, up 59 cents, or 2.09 percent.

Neilsen has built Ameristar from two small casinos near the Nevada-Idaho border to a company that reported $961 million in revenue in 2005 from seven casinos, properties in St. Louis, Kansas City, Mo., and just outside Denver.

Ameristar built The Reserve hotel-casino in Henderson (now known as Fiesta Henderson), but sold it to Station Casinos. The deal brought Ameristar company its Missouri gambling halls. Ameristar is spending almost $600 million to expand Ameristar St. Charles, Ameristar Black Hawk (Colo.) and Ameristar Vicksburg (Miss.).

The key to the Aztar transaction, Neilsen said, is the 34-acre site for the Tropicana. Although Colony has not said what it would do with the deteriorating 1,880-room hotel-casino, Pinnacle Entertainment said its would invest some capital into the Tropicana and operate the property for two years before demolishing the buildings in favor of an estimated $3 billion to $4 billion rebuilding project.

"It's a great site, one of the best, if not the best site available," Neilsen said. "We obviously will evaluate it in much greater detail. At some point we would plan to tear it down, but it would be at least two, 2 1/2 years minimum to plan a new facility and come up with a concept."

Purchasing Aztar would broaden Ameristar's national footprint, giving the company casinos in the major gaming capitals of Las Vegas and Atlantic City, and in America's heartland.

The transaction would jump Ameristar from the ninth in revenue among gaming companies to fifth. It would have 12 casinos in seven states, encompassing 774,000 square feet of casino space. In 2005, Ameristar and Aztar had a combined net revenue of more than $1.87 billion.

The interest in Aztar perplexed some casino watchers. There are differing opinions on whether acquiring Aztar would be good for Ameristar, which lost out to Harrah's Entertainment in 2004 in an attempt to buy rival Horseshoe Gaming.

"Aztar is an attractive acquisition. This would take the company where it wants to go," Jefferies & Co. gaming analyst Larry Klatzkin said.

Bear Stearns gaming analyst Joe Greff said Ameristar may run into trouble trying to redevelop the Tropicana site.

"(It) poses a potential risk as the company has had little experience designing and executing on a project of this size," Greff said.

Greff also said the 2,129-room Tropicana Atlantic City, which reported revenue of $490 million in 2005, could also face tough competition over the next few years.

"Slot play at Harrah's, Borgata and Caesars, as well as the introduction of alternative slot destinations in New York and Pennsylvania could stunt growth at the Atlantic City Tropicana," Greff said.

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