Fertitta's investor group, Fertitta Colony Partners LLC, is a newly formed entity that includes the investment firm Colony Capital and Fertitta's brother, Lorenzo, who is president of Station Casinos. In its proposal letter, the group said that it has received sufficient financing commitments to complete the acquisition. Station Casinos, which runs in the locals' casino market, said it received the bid on Saturday and has established a special committee of independent directors to review the bid and any other alternatives.
JP Morgan Securities' Gaming Analyst Harry Curtis said in a client note Monday morning that the buy-out price could eventually reach into the mid- to high $80s, either from Fertitta's group or a competing one. "Other buyers may be more willing to part with more of the land portfolio that STN has amassed over time" to offset a higher bid.
This is the third buy-out offer for a casino operator this year. In October, the private-equity firms Apollo Management and Texas Pacific Group bid for Harrah's Entertainment Inc.; the offer now stands at $83.50 a share, or about $15.5 billion. In May, Kerzner International Ltd. signed off on an $81-a-share buy-out offer from a private group led by its chairman Sol Kerzner and its chief executive Burt Kerzner. The merger was consummated in September. Other members of that buy-out group are Istithmar PJSC, Whitehall Street Global Real Estate Limited Partnership 2005, Colony Capital LLC, Providence Equity Partners Inc. and the Related Cos. LP.
Curtis said the offer for Station Casinos equates to 13.4 times estimated 2007 EBITDA and 12 times estimated 2008 EBITDA. With no land sales, no contract to manage Thunder Valley Casino in Sacramento beyond 2010 and an exit multiple of 9.5 times EBITDA, Curtis said the offer could generate an IRR of 10%. With $500 million of land sales and a renewed contract for Thunder Valley, the IRR jumps as high as 17%, he said.
Looking ahead, the buy-out "chatter" should continue for multiple companies, Curtis said. "Because it is a company with high inside ownership, the offer for STN is raising takeout discussions for virtually every company in the group, particularly [Boyd, MGM Mirage, Penn national, Pinnacle Entertainment, and Isle of Capri] and valuations are increasing," he said. "In general, we do not see these companies as viable takeout candidates given inside ownership not interested in pursuing an LBO, committed development pipelines, or both."
Despite his belief, news of the offer for Station Casinos positively affected the share price of several other casino companies including Boyd Gaming, whose share price was up about 13% to $47.37 in early afternoon trading. The share price Wynn Resorts and Las Vegas Sands both were up by more than 5%.
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