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The regional casino operator announced it had bought all of the equity interests of Creative Casinos, a company owned by longtime gaming executive Dan Lee, for $32.5 million.
Lee was moving forward with Mojito Pointe, a hotel-casino complex on a 242-acre site under a lease from the Lake Charles Harbor & Terminal District adjacent to the existing L'Auberge du Lac, which is owned by rival regional casino operator Pinnacle Entertainment.
Ameristar announced it would increase the scope of the development to 700 hotel rooms, expand the deadline to start construction by 120 days, to July 20.
Analysts speculated Lee was having trouble securing financing for the Mojito Pointe, which had a $400 million budget. In October, Lee reached an agreement with MGM Resorts International to take an undisclosed ownership stake in the project and to manage the resort.
"This deal most likely came up quickly as a result of Creative struggling to get the financing for the project," Macquarie Securities gaming analyst Chad Beynon told investors. "We expect Ameristar to build a high-quality project that should elevate the entire Lake Charles market."
Lee couldn't be reached for comment. He first envisioned the project, when he was CEO of Pinnacle, as Sugarcane Bay, a hotel-casino to operate in conjunction with L'Auberge. After his departure from the company, Lee secured the site and reached an agreement with his former company on sharing access points.
Mojito Pointe was approved by voters in Calcasieu Parish last year.
Ameristar Senior Vice President of Governmental Affairs Troy Stremming said another vote by the area's residents is not needed. He said Ameristar officials will determine whether to keep the Mojito Pointe name. The transaction also dissolves Creative Casinos's management contract with MGM Resorts.
Analysts said Ameristar would most likely use cash flow and tap into available credit agreements to build the hotel-casino, which would include several restaurants, an 18-hole golf course, a swimming pool and spa and other resort amenities, and at least 3,000 parking spaces, 1,000 or more of which will be in a garage. Ameristar expects to open the resort in mid-2014.
The project is the last remaining riverboat gaming license available in Louisiana. Ameristar operates seven casinos in regional gaming markets, including two developments in Missouri and the Ameristar Casino Hotel - Vicksburg in Vicksburg, Miss.
"This transaction now gives the company entry into a new market (Louisiana) where (it) previously did not have a presence and a clear growth trajectory," Deutsche Bank gaming analyst Andrew Zarnett told investors.
Ameristar Chief Executive Officer Gordon Kanofsky said in a statement the Lake Charles market, about two hours east of Houston, is one of the country's largest but most under-served gaming regions.
"We believe the development of this project, which will cater to patrons from the large and growing Houston metropolitan area as well as other southeastern Texas and southwestern Louisiana communities," he said.
While Wall Street viewed the deal as a positive for Ameristar, the announcement weighed down shares of Pinnacle. Ameristar closed at $20.93, up 54 cents or 2.65 percent on the Nasdaq, while Pinnacle shares fell 55 cents, or 4.86 percent, to close at $10.77 on the New York Stock Exchange.
Analysts said Pinnacle will face increased competitive pressures in Lake Charles that could hurt visitation and market share at L'Auberge.
"We recognize that the announcement will be viewed negatively for Pinnacle since (the) acquisition increases the certainty that the project will eventually reach completion," said Credit Suisse gaming analyst Joel Simkins. "However, the good news is that Ameristar is a strong operator, with an attractive regional brand."
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