Majestic Research

Associated Press

Station Casinos Agrees to Be Taken Private for $5.4 billion

By Ryan Nakashima
Published: February 26, 2007

LAS VEGAS – Neighborhood casino operator Station Casinos Inc. said Monday it agreed to be acquired by a private equity investor group that includes key members of its founding family for about $5.4 billion.

The group known as Fertitta Colony Partners LLC offered $90 per share for the Las Vegas-based company, an 8 percent premium over its closing price of $83.30 a share on Friday.

The group sweetened an earlier bid of $82 a share made Dec. 4. Since then, the share price has shot above that mark, and some shareholders sued shortly after the first offer was announced, saying the bid was too low.

The buyout group will also assume $3.4 billion in Station Casino’s debt as part of the deal.

After the announcement, Station shares rose $3.20, or 3.8 percent, to close at $86.50 on the New York Stock Exchange.

Analysts said the offer more fairly accounted for the company’s extensive undeveloped land holdings in the Las Vegas area, which some have valued at around $1 billion.

“$90 is more like it, but (the offer) still could go slightly higher,” said CIBC World Markets analyst David Katz in a research note. He valued the company at $72 per share, plus $16 to $24 per share for its land.

CtW Investment Group, which works with pension funds that hold 2.7 million shares, or 4.6 percent of the company, had previously accused the buyout group of abusing its insider position in securing a deal.

It said it was awaiting details from the company about whether a special committee of directors actively sought out other buyers or got an independent assessment of the company’s worth.

“When it’s the management team and the founders of the company that are seeking to buy it out, that kind of suspicion I think is inevitable,” said CtW research director Richard Clayton. “It’s worthwhile for shareholders to ensure that its directors are engaged in a process that is going to maximize shareholder value.”

Station officials would not comment on the agreement other than in documents it released to the public.

According to the deal, Station can solicit acquisition proposals from third parties for 30 days.

The company would also have to pay Fertitta Colony Partners $160 million if the deal falls through, unless it is because of a higher offer, in which case it would pay $106 million.

Shareholders of two-thirds of all the outstanding common stock and at least half not owned by the family must approve the deal. The Fertitta family owns about 25 percent of the total.

The deal marks the latest foray into the casino industry by private equity bidders that have seen value in their steady cash flows and extensive real estate holdings.

Harrah’s Entertainment Inc., the world’s largest casino operator by revenue, agreed in December to be bought for $17.1 billion by private equity firms Texas Pacific Group and Apollo Management Group in the largest going-private buyout of a casino company ever.

While Harrah’s shares were trading at a discount to its peers because it lacked a presence in the booming Chinese casino haven of Macau, Station shares similarly looked affordable because of a recent slump in the gambling market for Las Vegas residents, said Majestic Research analyst Matthew Jacob.

“It gave the Fertitta Colony Partners group the opportunity to acquire these assets for a price that I think in the long run may prove to be attractive,” he said.

Fertitta Colony Partners was formed by Station chief executive Frank J. Fertitta III and president Lorenzo J. Fertitta, and Colony Capital Acquisitions LLC, part of Colony Capital LLC.

Colony Capital already has casino holdings including Kerzner International, Resorts Atlantic City, Accor Casinos and the Atlantic City Hilton and Las Vegas Hilton.

Colony most recently bid for Phoenix-based Aztar Corp., owner of the Tropicana casino-hotels in Las Vegas and Atlantic City, N.J., but walked away this spring when an affiliate of Columbia Sussex Corp. made a higher offer.

Frank Fertitta Jr. founded Station Casinos with a 100-slot-machine gambling parlor and snack bar in 1976, and his sons took the company public in 1993. It has grown to 16 properties, including several Las Vegas-area neighborhood casinos, such as the Red Rock Casino Resort Spa that opened this year in the northeast. Most include movie theaters and food courts to entice local residents.

It also is part owner in the Green Valley Ranch Station Casino in Henderson and manages Thunder Valley Casino near Sacramento, Calif., on behalf of the United Auburn Indian Community.