Station gets tough with Crescent

The war between Station Casinos Inc. and Crescent Real Estate Equities Co. heated up Tuesday when Station asked a Nevada court to order Crescent to pay nearly $500 million for breaking off a merger agreement.

Station said Crescent's actions caused damages of more than $400 million to the casino company, whose Las Vegas properties garner about 40 percent of the money wagered annually in the "locals" market.

Station's common shares have lost about $305 million of value since peaking at 16 5/8 after the merger was announced in January. They closed Tuesday at 6 1/8, off 3/16.

Station also demanded that Crescent, a real estate investment trust controlled by Fort Worth billionaire Richard Rainwater, buy $95 million of new Station preferred shares to help finance expansions at Texas and Sunset Stations.

Executives from Crescent, which has filed a countersuit in federal court in Texas, couldn't be reached for comment.

Station disclosed its demands in a statement as noteworthy for its language -- peppered with phrases normally reserved for courtroom arguments -- as it was for its substance.

"It seems clear they're getting ready for a protracted and drawn-out battle in which only the lawyers will win," said one gaming analyst. "Emotional battles can be very expensive."

But Station Chairman Frank Fertitta III said the company "will do whatever we can to protect our shareholders' interests."

Tuesday's announcement disclosed Station has asked its banks to waive restrictive covenants on existing loans so it can borrow more money to complete the $96 million in expansions at the two Las Vegas casinos.

Station said the banks had provided "positive" and "encouraging feedback."

Analysts said the banks would provide the funding, but would probably charge a slightly higher interest rate for the loans.

Station has about $1.1 billion in debt outstanding, but said its cash flows last quarter were 35 percent higher than a year ago.

Its statement said Station "was deeply disappointed by Crescent's actions and could only believe they were motivated by a desire to avoid their contractual obligations."

It said that when holders of an existing $103 million issue of Station preferred stock objected to conversion ratios in the merger agreement, it began talks with Crescent and the stockholders to resolve the dispute and postponed an Aug. 4 vote on the merger to allow more time for negotiations.

Station said Crescent originally agreed to the delay, but following the announcement "repeatedly advised" Station it hadn't consented to the postponement.

"Because Station feared that Crescent would use this as a pretext for cancelling the merger agreement and refusing to fund (a portion) of the new preferred stock," Station sued for a declaratory ruling that the agreement was still in force, the statement said.

"Unfortunately, Station's suspicions were correct," the company said, and Crescent sued in Texas to terminate the merger.

Station also said it launched the expansion projects with Crescent's approval and planned to pay for them with the sale of $115 million of new preferred to Crescent. Last week, Station asked Crescent to draw $20 million of the new issue immediately.

"Station revealed that Crescent previously asked it several times to delay drawing on the new preferred stock so as to accommodate Crescent's own capital availability issues," the statement said.

"After several deferrals to assist Crescent, Station's development activities caused it to make the recent $20 million request," the statement said.

Crescent's lawsuit against Station demands payment of a $54 million break-up fee by the Las Vegas company. Break-up fees are a normal fixture of merger agreements, as they penalize a takeover company for shopping around for a better offer.

Crescent had proposed a stock swap valued at $18 for each Station share, a substantial premium over its trading range last January.

Crescent shares, which declined from about 38 last January, fell 1/4 Tuesday, to 29 3/4.

Separately, Station today declared a quarterly dividend of 87.5 cents per share for its $3.50 convertible preferred stock.

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