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Howard Stutz

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Boyd makes Station Casinos an offer

24 Feb 2009

By Howard Stutz

LAS VEGAS, Nevada -- Boyd Gaming Corp. has made a $950 million offer to acquire a significant portion of locals gaming rival Station Casinos, the company announced Monday in a filing with the Securities and Exchange Commission.

Boyd Gaming currently operates nine casinos in Las Vegas and Henderson. Under the proposed deal, Boyd Gaming would acquire the bulk of Station Casinos' 18 Southern Nevada properties, including Green Valley Ranch Resort, the recently opened Aliante Station, Santa Fe Station, Texas Station, Wild Wild West, the two Fiesta properties in Henderson and North Las Vegas, and several smaller nonhotel gaming businesses, such as the Wildfire.

Station Casinos would retain ownership of the Red Rock Resort, Palace Station, Boulder Station, Sunset Station and 356 acres of undeveloped land the company controls in the Las Vegas Valley. Those four casinos have almost $2.5 billion in debt tied to them, according to a Station Casinos' filing with the SEC last August.

Privately held Station Casinos has been in financial trouble for much of the past 12 months and is on the brink of filing for bankruptcy. The company missed a $14.6 million bond payment on Feb. 2 and a $15.5 million bond payment last week. On Feb. 3, Station Casinos asked its bondholders to approve a restructuring plan that could allow the company to emerge from a Chapter 11 filing by this summer. Bondholders have until March 2 to vote on the restructuring plan.

The company's prepackaged bankruptcy proposal included a debt exchange offer that would give bondholders between 10 cents and 50 cents on the dollar in new notes and cash.

"I think Boyd is trying to take advantage of a potential opportunity and capitalize on the bankruptcy proposal," Deutsche Bank gaming analyst Bill Lerner said after news of the offer surfaced. "Boyd is seemingly offering the subordinated unsecured lenders a better deal than they would get out of the company's proposal."

Wachovia gaming analyst Dennis Farrell Jr., also thought Station Casinos bondholders would see more value under Boyd Gaming's proposal. He said the offer allows Boyd Gaming to become a "stalking horse bidder" in bankruptcy court, meaning the company could try and acquire some of the assets through a restructuring.

"This is a strong statement by Boyd Gaming to double down on the locals market," Farrell said. "There is still a lot to be determined."

Macquarie Securities gaming analyst Joel Simkins told investors the transaction would give Boyd Gaming control of more than one-third of the overall Las Vegas locals gaming market, which has suffered tremendously during the current economic downturn. Casinos in North Las Vegas saw a 6.7 percent decline in gaming revenues in 2008, the Boulder Strip saw a 10.5 percent decline while the balance of Clark County, which contains much of the locals market, fell 7.2 percent.

"Boyd and Station have fought tooth and nail over an extremely similar database with extremely attractive promotions," Simkins wrote in a note to investors. "That said, we believe these marketing redundancies may be the biggest cost savings within a possible acquisition."

In an "indication of intent" letter to Station Casinos Chief Executive Officer Frank Fertitta III, Boyd Gaming Executive Chairman Bill Boyd and CEO Keith Smith said they would be willing to discuss acquiring other portions of the company as well.

"Based on available public information, we estimate that the enterprise value of the ... assets is approximately $950 million," according to the letter that was filed with the SEC after the close of trading on the stock market Monday.

"Boyd would be prepared to offer this amount in cash to existing stakeholders to acquire the ... assets following, or as part of, the reorganization of Station. We believe this value would present a superior recovery to the unsecured creditors of Station versus the current exchange offer. We believe that Boyd is uniquely qualified to operate the assets of Station."

Boyd Gaming spokesman Rob Stillwell said the company would not comment on the filing beyond the letter.

Late Monday, Station Casinos issued a brief statement, saying the company will evaluate Boyd Gaming's offer.

"We received an unsolicited, non-binding, preliminary indication of interest from Boyd Gaming Corp. to buy some of our company's assets," according to the statement e-mailed by company spokeswoman Lori Nelson. "We intend to continue to work with our lenders and bondholders to pursue our previously proposed plan of reorganization."

Station Casinos, which was founded by the Fertitta family, went private in November 2007 in a $5.4 billion private equity-financed deal. The Fertitta family members own 25 percent of Station Casinos while Los Angeles-based real estate firm Colony Capital owns 75 percent of the company. However, the Fertittas have control of the board.

Also, Station Casinos operates the Green Valley Ranch Resort, Aliante Station and several smaller properties in joint venture partnerships with the Greenspun Corp.

The company also manages an American Indian casino near Sacramento, Calif., and has agreements in place to manage proposed Indian casinos in California and Michigan. The company also owns 204 acres in Reno for potential casino development.

In its letter, Boyd Gaming said it has $2 billion available under its revolving line of credit to finance the transaction.

"Boyd envisions that any binding offer would be subject to the satisfaction or waiver of customary conditions," the letter stated. "In order to be in a position to deliver a binding offer, we will need to meet with Station's key managers and visit Station's casino properties."

The company has also had its own financial issues. On Aug. 1, Boyd Gaming halted construction of the $4.8 billion Echelon development on the Strip because of the diminishing credit markets. The company said it won't restart construction on Echelon this year and is considering scope changes in the project that covers 87 Strip acres, including the site of former Stardust resort.

Boyd Gaming has acquired a rival in the past. In July 2004, Boyd bought Coast Casinos for $1.3 billion from Michael Gaughan, which added the Barbary Coast, Gold Coast, Orleans, Suncoast and the under-construction South Coast to the company.

Two year later, Gaughan resigned from Boyd's board of directors, traded his stock in the company for the South Coast and renamed his privately held casino South Point. Boyd traded the Barbary Coast in 2007 for additional land adjacent to the Echelon site.

Boyd Gaming has since solidified its Coast Casinos subsidiary, adding its Sam's Town Casino on the Boulder Highway into the operating group. The company runs three casinos downtown and two small casino-only properties in Henderson.

Boyd shares, which have lost more than 85 percent of their value in the last 12 months, closed at $3.40 on the New York Stock Exchange, down 12 cents or 3.41 percent.

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