Two Way Hard Three | Las Vegas Casino & Design Blog

April 17, 2006 7:03 PM Posted by Steve S

Finally, now the real bidding will begin (although Columbia probably overbid at this point). Here are a few thoughts on this offer and PNK.

First off, this is another bidder that I question their ability to design, build and open a major Las Vegas property. I have a hard time taking it as legit/serious since Columbia Sussex (this bid is by one of their subsidiaries) dropped the President Casino acquisition in St. Louis because they weren't going to get a gaming licence (selling the MO property would have to be part of this deal I imagine - unless the President deal was scrapped based solely on their redevelopment plans that were rejected not once but twice - which doesn't make this seem any better for given the huge task in Las Vegas).

Second, this is another bidder that I just don't see getting the same benefit from the AC and LV casino's as Ameristar (ASCA) or Pinnacle (PNK). The relative difference in cross-market gains available makes this a more expensive deal for either Colony or Columbia at any given price (Colony can send it's players to LV already with the Hilton, and Columbia has a lot of Nevada properties - I'm just not sure how much cross-market play they can squeeze out of them?).

Third, the announcement changes nothing for PNK. I expect the original offer they put in had anticipated many more rounds of bidding (as indicated by the buffer in the financing - $3.4 billion versus debt after the merger of approx. $2.8 billion less the excess cash, which could be between $300-$600 million). It was estimated by one analyst that PNK could pay up to $48 a share and still have the merger be accretive to earnings in its first year. And if PNK doesn't get AZR, they get $55 million (not a bad trade-off, especially if their competition has already overpaid for assets).

Other Thoughts:
If you follow revenue reports and gaming markets, then the following website is very useful: http://www.morganjoseph.com/search.php
I post this because revenue reports by state are often posted here by the analyst along with some commentary. With the March Louisiana revenues posted today, I would expect that PNK will exceed expectations for the first quarter (in fact my estimate says they could post EBITDA comparable to what ASCA posted last year - or about $60-65 million - unless they ran some expensive marketing or promotions I'm not aware of).

Furthermore, PNK and HET (Harrah's) today agreed on what amounts to an asset swap (I'd like to see monetary terms of the deal - they will likely be posted shortly but I don't expect them to be significant). The deal basically swaps PNK's Biloxi property for HET's Lake Charles property/gaming licences. The significance of this is that it will allow for an expansion of L'Auberge that will encompass not only the new hotel tower but additional gaming space (not sure where the second licence will be used - possibly New Orleans, or a new facility in Baton Rouge given its growth?). This deal is great for PNK and HET as it allows both companies to create much nicer properties (HET has a site beside PNK's in Biloxi - this gives them the land to design and build a truly great property there - and lets PNK focus efforts on more profitable opportunities - Biloxi was not a particularly high return market).

Lastly, once the AZR board has made a recommendation, be prepared to see another round of bids. With revenue and EBITDA looking like they will come in higher than had been expected, PNK might be able to bid more than most previously thought possible. This is shaping up to be a fun one to watch!

April 17, 2006 8:08 PM Posted by gilli

Funny that the lowly old Trop sat around for years like an ugly old lady at a junior prom. But, look at her go now! I say those of us on this forum should get together and put in our own bid for the property. What do you say? I'll chip in as high as, oh, maybe $100. Who else is with me? I am already thinking up theme's for a replacement resort. How about the Antarctica Casino? We could build great big fake ice bergs in front with hotel towers shaped like icicles.