Station merger off, stock sinks

It's now official: Station Casinos' $1.5 billion merger with Crescent Real Estate Equities is off.

The failed merger caused Station stock to sink to a new 52-week low. The failure means Station, which dominates the Las Vegas locals' gaming market, will probably try going it alone despite what some call a staggering debt load. No other potential merger partners have surfaced.

Crescent said this morning it notified Station it "is in material breach of the agreement and plan of merger ... and that Crescent is exercising its termination rights under the merger agreement."

Crescent also said it sued Station in federal court in Texas seeking a declaratory judgement "that Station's breaches of contract excuse Crescent from any further obligations under the merger agreement, and that Crescent need not fund the purchase of 20,000 shares of Station's redeemable preferred stock for $20 million." Crescent is also seeking unspecified compensatory damages.

The Crescent announcements are no surprise, coming just one week after Station sued Crescent in Las Vegas, seeking a declaration that Station did not violate the merger agreement when it cancelled a special meeting at which shareholders were to vote on the merger. Station last week also gave Crescent a draw notice to purchase the 20,000 preferred shares.

Neither Crescent nor Station officials returned calls for comment today. Unmentioned in the Crescent statement is a $54 million breakup fee the company earlier claimed Station would owe if the merger fell through.

Fort Worth, Texas-based Crescent has been criticized for its plan to acquire Station almost since the merger was announced in January. Crescent's shares have fallen sharply since the announcement as the real estate investment trust's investors balked at the company's foray into what many see as an overcrowded, financially shaky gaming industry.

In June, Crescent announced it would spin Station's gaming assets into a separate company after the merger. Coming in conjunction with an announcement that it would increase its dividend 66 percent, the move was seen by analysts as a Crescent attempt to placate investor concerns about the merger.

Crescent said today it's canceling the dividend increase.

While the move may have worked for Crescent shareholders, Station's 2.07 million preferred shareholders became increasingly concerned about their treatment in the merger. Concerned that preferred shareholders would parlay their dissatisfaction with the exchange rate of their shares into a vote against the merger, Station on July 27 cancelled the shareholder meeting scheduled for Aug. 4.

That action prompted Crescent to warn Station that it was in violation of the merger agreement. And that action prompted Station's July 31 lawsuit.

As the merger appeared to unravel in recent days, Station analysts questioned the company's viability as a going concern. Station carries more than $1.1 billion in debt, including shareholder equity and a working capital deficit.

Trading of Station shares was suspended this morning for 37 minutes after the Crescent announcement. The stock opened at 10:28 a.m. at 6 1/4, down 1 3/4 from Thursday's close. It immediately headed lower, hitting 5 3/4, down 2 1/4, on volume of 645,000 shares, by 10:50. Average daily volume is 151,000 shares.

Station preferred stock was down 4 1/2 to 35 3/4.

Crescent shares were up 1 1/16 to 30 1/4 at 10:50 a.m. Crescent was trading around 38 when the merger was announced.

Crescent owns office buildings, psychiatric hospitals, cold-storage companies, shopping centers, hotels and residential developments. Station is Las Vegas' largest operator of locals casinos, owning Sunset, Texas, Palace and Boulder Stations. The company also owns a casino in Kansas City, and a riverboat casino in Missouri.

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