Landry’s to buy Golden Nugget

Sun Staff

Friday, Feb. 4, 2005 | 11:14 a.m.

Call it a Vegas marriage of "fish and chips." Or maybe a fish nugget.

A year after jumping into the gaming industry with their first big casino deal, the owners of downtown's historic Golden Nugget have sold the property to the owner of the Landry's and Joe's Crab Shack restaurants for about $295 million.

The Poster Financial Group, a private investment firm established by Internet millionaires Timothy Poster and Tom Breitling, sold the 4,000-square-foot casino and 1,907-room hotel -- downtown's largest and most upscale -- to Houston-based Landry's Restaurants Inc.

The deal, which includes $140 million cash and the assumption of $155 million in debt, is subject to approval by Nevada gaming regulators.

Poster and Breitling, who announced they were buying the Nugget and the Golden Nugget Laughlin for $215 million in June 2003 and completed the transaction in January 2004, capitalized much of their acquisition from MGM Mirage with funds realized from the sale of an online reservation company.

Poster and Breitling announced in November they were selling the Laughlin property to Barrick Gaming Corp. for $31 million.

Publicly traded Landry's, which operates a variety of casual-dining and entertainment companies, owns more than 300 restaurants, including the Rainforest Cafe chain. The company employs more than 30,000 people in 36 states.

Landry's stock price was up 11.7 percent over Thursday's closing price to $31.75 a share in early afternoon trading today.

The company also is involved in family-oriented entertainment venues, including aquariums in downtown Houston and Denver. In December, the company reported a 7 percent revenue increase to $907.7 for the nine months ended Sept. 30. Profit rose 25 percent to $54.2 million on new restaurant openings and higher sales.

In Las Vegas, the company operates the Landry's Seafood House on West Sahara Avenue, two Joe's Crab Shack restaurants on North Rainbow Boulevard in Las Vegas and on East Sunset Road in Henderson and the Rainforest Cafe at the MGM Grand.

Landry's officials had been casting their nets for a Las Vegas hotel-casino property for several weeks leading up to today's announcement. Landry's first disclosed its interest in buying a Las Vegas casino during an earnings conference call in December.

"Landry's is thrilled to add casino gaming to a varied and diverse collection of entertainment offerings that already includes casual and fine dining, hospitality and aquarium properties," Chairman, President and Chief Executive Tilman Fertitta said in a statement today.

Fertitta is a cousin to the Fertitta family that owns and operates neighborhood casinos giant Station Casinos Inc. in Las Vegas.

Station Casinos Chief Financial Officer Glenn Christenson said his company has a duty to its own shareholders and won't be involved in consulting for Landry's or otherwise helping the company with its entry into the casino business.

"We don't anticipate working with them," he said.

Poster and Breitling were not available for comment this morning on their plans once the deal is completed by the end of the year.

Dan Shumny, vice president of marketing for the property, said he expects Poster and Breitling will talk next week about their plans. He wouldn't speculate on whether they would attempt to deal for another gaming property, possibly something on the Strip.

"These guys have been entrepreneurs their whole life," Shumny said. "I expect they will continue to do entrepreneurial things."

Shumny said he did not know how long the deal had been in the works, but that it came together quickly in the last few days.

He said executives are in the process of telling employees about the deal today. Reaction so far, he said, has been favorable.

Employees of the downtown property would not comment on the record, but several said this morning that the first word of the sale came this morning.

One 14-year employee of the Golden Nugget said that the lack of rumors in the days leading up to the agreement seemed to indicate that the deal was reached quickly.

"It must have happened fast," he said. "I didn't hear about it until I got here at 5 o'clock this morning."

He and other employees said that an ownership change should cause little disruption.

"We've been through this before," he said.

Bernie Zepper was staying at the Golden Nugget for the first time, and said there was no indication among employees that changes were in the works.

"I hadn't heard a thing," he said, adding that in conversations with employees no one mentioned the deal.

Other guests seemed unfazed by the news.

"I think it will stay pretty much the same," said Richard Harsha, a Minnesota resident who was returning to the hotel for a second stay.

Deutsche Bank Securities analyst Marc Falcone said Poster and Breitling "got a very good return on their investment."

"I don't know what kind of returns (Landry's) is looking for but it's a great asset with a lot of history," he said. "The downtown market continues to have a lot of positive momentum."

The casino suffered losses in recent months, in part because of attempts to lure gamblers with high, yet risky betting limits, analysts said. The company reported a loss of $8.7 million in the third quarter and a loss of $5.5 million for the nine months ended Sept. 30. The company has yet to report fourth-quarter results.

Significant revenue generated by casinos over the past year will continue to attract investors, he said.

The entry of a newcomer to the casino business will "support asset values" for casinos, Morgan Stanley analyst Celeste Mellet Brown said in a research note today.

"Landry's is focused on the family entertainment segment, and this transaction shows that gaming is becoming more mainstream," Brown said.

Casino values have increased in Las Vegas in recent months as major casino mergers and land sales boost prices.

"It's going to be business as usual" during the transition to Landry's management team, Shumny said.

"Everybody continues to be excited about the downtown market and now Landry's wants to make a splash downtown," he said.

The licensing process for a new entrant to the gaming industry normally takes several months. Members of the state Gaming Control Board could not be reached for comment this morning about whether they foresee any problems with licensing or suitability for Landry's executives.

It took Poster and Breitling about 11 months to complete the process when they acquired the Nugget.

The men received heavy scrutiny from casino regulators who criticized Poster's association with local topless club owner Rick Rizzolo, the target of an FBI investigation into alleged ties to organized crime. After assuring regulators that they had severed their ties with Rizzolo, Poster and Breitling received a limited, four-year license to run both casinos.

The Nugget employs about 3,600 people and has about 1,300 slot machines, more than 50 table games and a sports book. Poster and Breitling aimed to develop vintage Vegas offerings at the property, where a 400-seat showroom included appearances by Tony Bennett and Regis Philbin.

The property also has 30,000 square feet of meeting and banquet facilities and a 10,000-square-foot glass-enclosed pavilion that has been used as a poker room. In the last three years, the property has spent $35 million on room renovations and upgrades.

Poster and Breitling founded a Las Vegas hotel reservation business that evolved into Travelscape.com Inc. and was sold to a Microsoft spin-off for about $100 million in 2000.

Their success story achieved nationwide recognition in the Fox reality show "The Casino," which profiled their purchase of the Golden Nugget and their hands-on management style. Fox discontinued the show after its first season because of disappointing ratings.