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Boyd responds to Station’s rejection of buyout

Sante Fe Station

Justin M. Bowen

Boyd’s $950 million offer is for Station’s Texas and Santa Fe stations, its two Fiestas and its interests in Aliante Station and Green Valley Ranch Resort.

Updated Monday, March 9, 2009 | 5:33 p.m.

Boyd Gaming Corp. of Las Vegas today stepped up its campaign to acquire some or all of Station Casinos Inc., arguing it's offering a better deal to Station creditors than are Station's owners.

In its first official statement since Station rejected Boyd's $950 million offer for part of Station on March 3, Boyd addressed Station's concerns about its ability to finance a deal and antitrust and regulatory issues; and promised to keep secret any confidential information it would see during takeover talks.

Boyd stock was steady on the news, closing at $3.08, down 2 cents.

David Schwartz, director of UNLV's Center for Gaming Research, said Boyd's interest in Station makes sense for Boyd because of Boyd's expertise in the Las Vegas locals market.

"They seem to like it and know what they are doing,'' Schwartz said.

And just as importantly, Wall Street's low valuation for gaming companies means Boyd could pick up some or all of Station's properties at what appear to be bargain prices, he said.

"It's definitely a sign of how the gaming valuations have slipped,'' he said.

Boyd's $950 million offer is for Station's Texas and Santa Fe stations, its two Fiestas and its interests in Aliante Station and Green Valley Ranch Resort. Station's partner in the latter two properties is an affiliate of the Greenspun family, owner of the Las Vegas Sun. Not included in the offer are Red Rock Resort and the Boulder, Palace and Sunset Station properties.

Boyd has not said whether, on top of the $950 million cash offer for the selected properties, it would be willing to assume any debt or other obligations associated with those properties. Nor has Boyd disclosed if it has or will buy some of Station's debt to put it in a negotiating position in bankruptcy court, should Station continue to refuse to negotiate with Boyd.

Boyd spokesman Rob Stillwell declined comment on both of those issues today.

Station Casinos spokeswoman Lori Nelson said, without elaboration, "Our previous comments speak for themselves.''

Deutsche Bank securities analyst Bill Lerner said it may not make sense for Boyd to be buying Station debt, since that debt could decline in value should Boyd be unsuccessful in leveraging it to acquire Station assets.

Lerner said it's not surprising that Boyd continues to pursue an acquisition of all or part of Station, because Boyd is aware that some of Station's bondholders are dissatisfied with the offer on the table from Station.

"I would suspect Boyd recognizes they have a real opportunity to acquire some strong locals market assets, or the entire company,'' Lerner said.

Station assets also may draw additional suitors, he said, naming Penn National Gaming as a potential buyer because of its strong balance sheet; along with investor Carl Icahn, who has shown an appetite for the locals gaming market and has plenty of experience in mergers and acquisitions involving distressed companies.

Penn National has been interested in entering the Las Vegas market and Icahn last year completed the sale for $1.2 billion to Goldman Sachs of his Southern Nevada gaming properties: the Stratosphere, two Arizona Charlie's hotel-casinos and the Aquarius in Laughlin.

On March 3, Station Chairman and Chief Executive Officer Frank Fertitta III sent Boyd a letter saying the Station board of directors would not engage in takeover talks with Boyd and instead would proceed with a reorganization plan in which Fertitta and the other owners of Station would invest $244 million in the Las Vegas locals' casino giant as part of a prepackaged bankruptcy.

Under that plan, which bondholders have until April 10 to vote on, Station would save substantially on interest expenses by swapping some $2.3 billion in debt for lower-priced notes and cash. Some bondholders would receive 10 cents to 50 cents on the dollar under that deal.

In his letter, Fertitta noted "Boyd’s potential inability to perform due to its own financial position.''

That's an issue that observers of the potential deal have seized on, since Fitch Ratings lowered its ratings on Boyd debt March 3 based not on the potential Station acquisition, but on the weak business trends in Las Vegas caused by the recession. Boyd is the dominant player in the downtown Las Vegas casino market and is a significant competitor to Station for locals and in the suburbs with its Sam's Town, Orleans, Suncoast and Gold Coast properties.

On Feb. 26, Boyd said it took impairment charges of $290.2 million and reported a fourth quarter loss from continuing operations of $220.8 million, or $2.51 per share, compared to a profit of $31 million, or 35 cents per share, in the same period last year.

Revenue fell from $478.6 million to $422.6 million.

The text of Boyd's statement today:

"To date, Station has not engaged Boyd Gaming in any discussion regarding the Company's proposal, nor has it provided any information that would enable Boyd Gaming to consider submitting a binding proposal. The Company understands Station's concern of sharing sensitive information and is prepared to work with Station to employ standard and customary due diligence methods to minimize this risk.

"Despite Station's letter, Boyd Gaming remains committed to pursuing a transaction to acquire some or all of the assets of Station, and is prepared to work with Station in a timely fashion to prepare a formal proposal.

"Boyd Gaming reiterates that it has sufficient liquidity under its credit facility to finance a cash transaction, and contemplates that no amendment to its credit facility would be required under the proposed transaction structure. Boyd Gaming further believes that the necessary regulatory and governmental approvals could be obtained in a timely manner.

"Boyd Gaming continues to believe the proposal outlined in its February 23, 2009 letter offers a superior recovery to creditors when compared to the current restructuring offer Station has proposed."

Steve Green can be reached at 990-7714 and or [email protected].

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