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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Z Capital makes fourth attempt to acquire Affinity Gaming

17 November 2015

Illinois-based investment group Z Capital, the largest shareholder in casino operator Affinity Gaming, has made its fourth offer in the past two years to acquire the Las Vegas-headquartered company in a deal valued at $700 million.

Z Capital CEO James Zenni said Monday he would pay $13 a share to acquire the remaining shares of Affinity, which operates 11 casinos in four states, including the off-Strip Silver Sevens Hotel & Casino and the three Primm resorts. Z Capital already controls 40.5% of the company, which is not publicly traded but has publicly held debt.

"We believe our proposal provides maximum value to Affinity Gaming's stockholders," Zenni wrote in a letter to Matthew Doheny, the chairman of a special Affinity board committee. "Absent a transaction of the type we are now proposing, we do not think there is any opportunity for Affinity Gaming's stockholders to see meaningful appreciation in their equity value, or to realize that value in the foreseeable future."

The company has rejected other proposals from Zenni, including an $11.50 per share offer in May.

Zenni was appointed to Affinity's board in 2014 after a lengthy legal skirmish with previous board members.

Z Capital, which filed its letter with the Securities and Exchange Commission, said the offer expires on Nov. 25. The investment group said it would fund the transaction through "equity capital provided by funds managed and advised by Z Capital, as well as debt financing from sources with which Z Capital has a long-standing relationship."

Last week, Affinity reported a third quarter net profit of $1.99 million, a 2.7% increase in net revenue to $102 million and an increase of companywide cash flow of 33%.

Affinity's five properties reported that net revenue grew 6.1% to $61.5 million and cash flow jumped 83.7%. In addition to Nevada, Affinity owns casinos in Colorado, Iowa and Missouri.

Affinity CEO Michael Silberling said more than half of the company's casino doubled or tripled their cash flow rate.

In his letter, Zenni said the $13 per share offer was "extremely attractive, particularly in light of the range of significant challenges that Affinity Gaming continues to face."

Silver Point Capital, a Connecticut investment firm, is Affinity's second largest shareholder with a 25.1% ownership stake in the business. Z Capital has slowly increased its stake in Affinity Gaming over the past few years. Zenni was licensed by Nevada gaming regulators as an investor in 2012.