Las Vegas Sun

March 24, 2019

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Riviera drops poison pill

A few months after rejecting an investor's buyout offer for the Riviera casino in Las Vegas, the property's parent company, Riviera Holdings Corp., says it is now better positioned to accept a takeover bid.

At the company's annual meeting last week, shareholders voted to eliminate a requirement that prevented individuals owning more than 15 percent of the company's stock from voting incremental shares over that 15 percent threshold. Shareholders with a 10 percent stake or more must still receive approval by the company's board of directors to vote all of their shares.

The company installed the requirement in the early 1990s to fend off hostile takeovers. But it also has locked out potential investors, Riviera Chief Financial Officer Duane Krohn said.

Deleting the "poison pill" provision "will enable us to pursue opportunities to increase our equity base and attract strategic partners who could provide additional financial resources," Riviera Chief Executive William Westerman told investors during the company's second quarter earnings call Tuesday.

Besides its Strip casino, Riviera Holdings owns the Riviera casino in Black Hawk, Colo., and is pursuing casino projects in Missouri and New Mexico.

The company hasn't had any "significant discussions" so far with potential investors, Westerman said.

In March, Italian hotel entrepreneur Fabrizio Boccardi pressed a highly publicized bid for the Las Vegas casino. Boccardi said he wanted the company to waive a contract giving bondholders the right to require new management to buy back outstanding bonds at a premium.

The company hasn't talked to Boccardi since March, Westerman said.

"We attempted to reach some kind of deal with him for several years and finally reached the conclusion that there's no practical way of doing one with him," he said.

Riviera has filed motions to dismiss two shareholder lawsuits that arose after it rejected the bid.

The company now hopes to attract strategic partners for the Riviera as well as for its expansion opportunities outside Las Vegas, Westerman said.

The company is under pressure by Riviera investors to increase its stock price and reduce its heavy debt load, analysts say. While the property sits on valuable land near the upcoming Wynn Las Vegas resort and other strategic redevelopment projects at the north end of the Strip, an acquisition remains problematic, they say.

Major Las Vegas casino companies with cash to spare are unlikely buyout prospects because they already have their hands full with redevelopment or expansion projects of their own, according to a Wall Street analyst who declined to be named.

Offers will more likely come from single investors and developers "with more dreams than capital," the analyst said.

Investors with plans to implode the property have an uphill battle in coming up with the funds to purchase the casino, buying up the debt and plowing hundreds of millions more into a new resort, he said.

The company has about $215 million in outstanding bonds -- bonds that would likely have to be financed if the potential buyer lacked the credit rating of a casino giant, he added.

A larger, more creditworthy company, on the other hand, might likely step in and take over the property without triggering a request from bondholders to pay off the debt, said John Maxwell, a bond analyst with Merrill Lynch.

With the Riviera, the sticking point has ultimately been the reluctance of management to sell, Maxwell said.

"These guys tend to like running their properties. They're not anxious to sell," he said. "At the end of the day, they would only sell if they got a top price. I don't know if someone's willing to pay what the (directors) think the company's worth."

Company executives and directors own around 30 percent of the company's stock, according to the company's latest proxy statement. Westerman, 71, owns the biggest stake, at around 18 percent. New Jersey casino tycoon Donald Trump and investor Jeff Jacobs -- who haven't made takeover bids -- each own roughly 10 percent of the stock.

Though losses widened in the second quarter, the company remains on solid footing, with $21 million in cash and $30 million in available credit, executives said Tuesday.

"We have the financial resources to weather any continued adverse business conditions and to fund the equity portion of our anticipated projects, including new venues, Westerman said.

The Missouri Gaming Commission is expected to begin considering the company's application for a casino south of St. Louis in October, Riviera Las Vegas President Bob Vannucci said. The decision has been delayed by several openings on the commission that are expected to be filled this summer, he said.

While Riviera is the favored applicant for the casino, a nearby county has put out a proposal to attract another casino that would be closer to downtown St. Louis, he said. The state will likely choose between the two projects by granting only one casino license, he added.

Also, the New Mexico Racing Commission has delayed hearings to grant a racing license in that state that could open the door to a racetrack with slot machines, or "racino." Riviera joins three other candidates for the license, which is expected to be granted before the end of the year, Vannucci said.

The best prospect for a Riviera buyer would be to wait until the company can use cash flow generated at its Black Hawk casino and its potential casinos in other states to fund improvements in Las Vegas, the Wall Street analyst said.

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