3 gaming companies face new shareholder lawsuits

By Liz Benston

Wednesday, July 9, 2003 | 10:54 a.m.

Three gaming companies are the target of lawsuits by disgruntled shareholders filed in Clark County District Court alleging that the companies' boards of directors failed in their fiduciary duties to shareholders by either approving or preventing deals to acquire the companies.

In two of the suits, which are seeking class-action status, shareholders claim board members of Riviera casino parent Riviera Holdings Corp. intentionally thwarted legitimate bids to take over the property, including an offer made earlier this year from Italian investor Fabrizio Boccardi.

"Shareholders are currently deprived of the opportunity to realize the full benefits of their investment in the Riviera," according to one of the suits, filed in April. Directors failed to "adequately consider" Boccardi's offer of about $8.50 per share, which would have topped the company's prevailing share price of about $7.75, it continued.

The second suit, filed by another stockholder in May, presses a similar complaint.

Riviera Holdings, in a proxy statement released last month, said the suits were "without merit" and that the company would "vigorously defend against them."

Another suit, filed last month by a shareholder of Acres Gaming Inc. against the company and its board of directors, claims Acres failed to adequately value and shop the company to prospective buyers before it agreed to be acquired by slot maker International Game Technology.

IGT said it would pay $130 million for the company, or $11.50 per share. Acres closed at $11.26 the day of the announcement June 30, higher than Tuesday's close of $11.17.

Acres Gaming is best known for making systems that can track gamblers' slot machine play and award player bonuses that can be redeemed directly from a machine.

Acres today said it "believes that the plaintiff's claims are without merit."

The third shareholder suit claims directors of PDS Gaming Corp., a company that leases slot machines, violated their fiduciary duties in agreeing to sell shares of the company to a management group.

The suit marks the third such shareholder complaint that has been filed against the company over the announcement, made in February. Each of the two prior suits was voluntarily dismissed by shareholders in response to the company's motion to dismiss, PDS Gaming said in a statement Tuesday.

The company said it has extended until Aug. 10 a letter of intent relating to the proposed sale.

A committee of the company's board of directors consisting of its independent directors is negotiating with the prospective buyers toward a definitive agreement, the company said.

"The company believes the allegations are without merit and intends to vigorously defend the lawsuit," it said.

The Riviera suit claims directors brushed off a sale to Boccardi to "entrench themselves in office so that they may continue to receive the substantial salaries, compensation and other benefits and perquisites of their offices." In the event of a takeover, directors and senior management would likely lose their board appointments, the suit said.

The suit calls for the company to undertake an evaluation of the Riviera's worth as a merger or acquisition candidate and account for "damages suffered" by shareholders as a result of the allegations.

The suit described Riviera Holdings as a "highly attractive acquisition candidate" that sits due north of a $2.4 billion megaresort under construction by Steve Wynn.

"As one of the few casinos near the new (Wynn Las Vegas) casino, the Riviera Hotel & Casino will benefit immensely from increased visitors when it opens in 2005," it said.

A third party buyout of the debt-laden Riviera would be difficult, analysts say, because it would trigger the right to an accelerated repayment of bonds held by senior secured lenders at a premium to the amount owed. Boccardi's offer was contingent upon a waiver of that repayment schedule.

The Acres suit claims executives and directors "spent substantial effort tailoring the structural terms of the acquisition to meet the specific needs of IGT" instead of entertaining offers from other candidates.

"In essence, the proposed acquisition is the product of a hopelessly flawed process that was designed to ensure the sale of Acres Gaming to one buying group, and one buying group only, on terms preferential to International Game and to subvert the interest of ... public stockholders of Acres Gaming," the suit continued.

By June, Acres directors knew of the company's results for the second quarter of the year, the suit said. The results were disclosed to IGT but not to shareholders, it said.

The company in May revealed its financial results for the third fiscal quarter ended March 31. Second quarter results won't be released until about August.

The suit calls for directors to withdraw their consent to the sale, retain an independent adviser and take steps to ensure against conflicts of interest between directors and their duties to shareholders.

It's not uncommon for such suits to surface after companies such as the Riviera announce deals to acquire or sell assets, Riviera Holdings Chief Financial Officer Duane Krohn said.

Companies whose share prices charge upward at the news of a potential acquisition can fall again after a deal isn't consummated. Investors also have questioned sale prices that don't offer a premium to what a company is worth.