Monday, Sept. 18, 2000 | 11 a.m.
While gaming stocks have roared ahead in 2000, Boyd Gaming Inc. has been a notable laggard, much to the frustration of company officials.
Could the company's new $1 billion Atlantic City megaresort, the Borgata, be the catalyst for growth? Boyd President Don Snyder believes that it could -- but if it doesn't, he says he's not ruling out the possibility Boyd could attempt to go private next year in an attempt to boost shareholder value.
"We haven't done any work in this area (going private) at all," Snyder said. "But it's something you have to consider, if you don't get the right response (from the public markets).
"We're fundamentally stronger than in the past because of the things we've done, and it's frustrating that the stock hasn't moved. If the fundamentals weren't there, it might be more understandable."
Since 1997, Boyd has acquired three properties -- the Blue Chip in Indiana, the Treasure Chest, and Par-A-Dice in East Peoria, Ill.
Boyd's stock closed Friday at $4.56, well off its 52-week high of $7.25. For Boyd, the big turning point was a sell-off on July 19, following a disappointing earnings report that saw earnings hurt by decreased performances at Sam's Town Las Vegas, Sam's Town Tunica (Miss.) and Treasure Chest near New Orleans. Boyd blamed the downturn at both Sam's Towns on renovation projects, but construction on both casinos should be complete by year's end.
Investors shaved 12 percent from Boyd's share price on the report. Since then, Boyd stock has yet to surpass the $5 per share mark.
Meanwhile, larger gaming stocks have roared ahead, as the four lions of the industry -- MGM MIRAGE, Park Place Entertainment, Harrah's Entertainment and Mandalay Resort Group -- are all trading near 52-week highs. Mandalay has posted the most spectacular gains, rising 113 percent from its March lows, while MGM MIRAGE is up 87 percent, Harrah's up 75 percent, and Park Place up 44 percent.
"I would agree with management that they're (Boyd) somewhat cheap," said CIBC World Markets gaming analyst Adam Steinberg. "(Going private) would not be a surprise. A lot of people think that's something the company should consider.
"I do think it is eventually a good move for the company. But at this point, you really have to look at when it can take place, given the cost of the Borgata and the cash necessary to complete that construction."
Though depressed stock prices often make a company a takeover target, that's less likely with Boyd. Chairman and Chief Executive William Boyd controls 40.35 percent of the stock alone; holdings by other Boyd family members and friends push insider ownership past 50 percent.
"Bill Boyd has never been a seller," Snyder said.
Snyder hopes a kickstart could come from the Borgata, being built as a joint venture with MGM MIRAGE. With MGM MIRAGE's blessings, Boyd boosted the size of the Borgata from 1,200 rooms to 2,000 rooms, and the cost from $750 million to $1 billion. Once complete, Snyder believes the upscale resort will raise the bar for Atlantic City as the Mirage did for Las Vegas in 1989.
"I have absolutely no doubt that property will outperform what's there (in Atlantic City)," Snyder said.
But what event will cause investors to take notice isn't clear. While this week's planned groundbreaking will be a "major milestone," Snyder believes the corresponding stock boost may not come until the project gets closer to its scheduled 2003 completion date.
"People wondered whether this project would move forward or not," Snyder said. "It's a very significant step for people to realize this project is moving ahead. That certainly creates momentum for the project, and hopefully for things like stock prices.
"But with development projects these days, people wait until closer to when the property opens to get excited about it."
Steinberg, calling Borgata "a catalyst," believes the project could ultimately add $2.50 to $3 per share to Boyd.
A longer-term growth possibility for the company remains at the Stardust, where Boyd holds 61 acres of Strip land. Snyder said Boyd remains committed to developing this land parcel at some point in the future, particularly as Steve Wynn prepares for a huge resort at the site of the nearby Desert Inn.
"Our focus for the next two and a half years will be doing things to get a very large project in Atlantic City open," Snyder said. "As that project winds down, it certainly gives us flexibility to look at what's next. With some of the development on the Strip, this long-term strategic asset is becoming much more valuable in our eyes."
Though no plans have been considered yet, Snyder said it shouldn't be assumed a development would mean the end of the venerable Stardust.
"The Stardust name and its customer base gives us a lot of flexibility to work with that product," Snyder said. "(The land) can certainly accommodate more than one property."
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