Monday, February 26, 2007

Station Casinos Agrees to Be Bought for $8.8 Billion

By Heather Burke

Feb. 26 (Bloomberg) -- Station Casinos Inc., owner of 12 Las Vegas-area casinos, agreed to a sweetened $8.8 billion takeover bid from the company's management, including its founder's sons.

Chairman Frank Fertitta III and his brother Lorenzo Fertitta, who is president, joined with buyout firm Colony Capital LLC to offer $90 a share, Station Casinos said today in a statement. The buyers will assume $3.4 billion in debt. They bid $82 a share for the Las Vegas-based company in December.

Station's shares, which have increased more than sevenfold since the end of 2001, rose past the bid price after the first offer as investor activists urged the board to seek more money. Under private ownership, the Fertittas will be able to expand in Las Vegas without public investors questioning their decisions.

``With private equity, a company can be longer sighted, without the short-term pressure,'' said Dan Ahrens, president of Aherns Advisors LP in Dallas and author of the book ``Investing in Vice.'' ``There has been a great deal of private-equity interest in gaming.'' His firm owns Station shares.

The offer, valued at $5.4 billion for just the shares, is 30 more than Station's closing share price on Dec. 1, the last trading day before management and Colony made the initial offer. It's 8 percent above the closing price on Feb. 23. Station operates the Palace Station Hotel & Casino and the Santa Fe Station Hotel & Casino that cater to Las Vegas residents.

Investment Stake

Shares of Station rose $3.51 to $86.81 at 10:34 a.m. in New York Stock Exchange composite trading. The Fertittas, along with former board member Blake Sartini, control 26 percent of Station's stock, according to data compiled by Bloomberg.

The company's 6.625 percent note due in 2018 rose 8.6 cents to 98 cents on the dollar, yielding 6.9 percent, according to Trace, the NASD's bond price reporting service.

``The chance for a higher offer to emerge is unlikely,'' said Justin Sebastiano, an analyst with Nollenberger Capital Partners, in a note to clients. He rates the shares ``neutral.''

The initial offer didn't correctly take into account the worth of Station's $1 billion of developable land, Sebastiano said, calling today's offer ``adequate.''

Station market value is about $4.96 billion, making it less than one-sixth the size of the world's largest casino company, Las Vegas Sands Corp.

Station is about one-third the size of Harrah's Entertainment Inc., which accepted a $17.1 billion buyout offer from Apollo Management LP and Texas Pacific Group two months ago. More than $25 billion in U.S. casino deals were proposed last year, exceeding the total in the previous six years combined, according to data compiled by Bloomberg.

Fourth-Quarter Results

Station's net income more than doubled in 2005 to $161.89 million. The company is scheduled to report fourth-quarter and full-year results on Feb. 28.

``All casino operators remain in play and should continue trading at or above the high end of their historical valuation range,'' David Katz, an analyst at CIBC World Markets in New York, wrote today in a research note. He rates Station shares ``market weight.''

Station's buyers said they have arranged enough financing to complete the transaction, and plan to assume or pay back $3.4 billion in debt. Deutsche Bank AG and JPMorgan Chase & Co. affiliates have provided debt financing commitments.

The Fertittas expect to complete the purchase in six to nine months.

Bear Stearns Cos. served as financial adviser to a special committee of Station's board. Only independent directors were members of the committee, which recommended Station shareholders approve the transaction. Deutsche Bank advised the buyout group.

First Offer

Station's management first offered to take Station private for $82 a share on Dec. 4. The union-backed CtW Investment Group, which advises shareholders, said last month the bid should be at least $97 a share.

Colony Capital, run by billionaire Tom Barrack, has invested more than $19 billion since its founding in 1991, according to its Web site. Los Angeles-based Colony bought four casinos in 2004 from Harrah's and Caesars Entertainment Inc. for $1.2 billion.

Station, founded by Frank Fertitta Jr., started as a Las Vegas bingo hall in 1976. The company has focused on attracting gamblers who live and work in Clark County, Nevada, which includes Las Vegas, an area that has more than doubled in size from 741,000 residents in 1990 to 1.7 million in 2005.

Fertitta III took over as CEO in 1993 when Station went public. Lorenzo became president in 2000.

In 2001, Station and privately held Greenspun Corp. opened the $500 million Green Valley Ranch, an upscale casino and spa in the Las Vegas suburb of Henderson aimed at both locals and tourists tired of the Strip. The partnership is developing Aliante Station, a hotel and casino in North Las Vegas.

Station is the sole owner of the Red Rock Casino Resort & Spa, in the suburb of Summerlin, which opened in April and cost $925 million. The Fertitta brothers also own the Ultimate Fighting Championships, a no-holds-barred martial arts competition.


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