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Arnold M. Knightly
 

Riviera Holdings says it will hire adviser; profits double during quarter

7 May 2007

LAS VEGAS, Nevada -- Riviera Holdings Corp. has rejected three takeover offers in the past nine months, but the parent of the Riviera on the Strip suggested Friday that it may be open to a buyout after all.

As he announced a doubling of Riviera Holdings' earnings, Chairman and Chief Executive Officer William Westerman said his company will hire an adviser to "explore a range of strategic and financial alternatives," including a possible sale.

Riviera Holdings posted net income of $2.6 million, or 20 cents per share, for the quarter ended March 31, up from $1.3 million, or 10 cents per share, a year earlier.

Revenue rose 0.7 percent to $52 million from $51.7 million.

The company is in the midst of a $336.4 million buyout bid led by a group of company shareholders who control nearly 20 percent of the company's stock.

Riv Acquisition offered $27 per share March 26, but the bid was blocked by the current board on grounds that Riv Acquisition colluded with two major shareholders of the company for the additional 9.2 percent of shares.

To succeed, Riv Acquisition's current buyout offer would need the approval of holders of 60 percent of the stock.

The investment group sued in District Court on April 17 and followed 10 days later with a list of nominees for upcoming board elections to be held during the May 15 shareholders meeting.

Westerman said during the conference call that the current board is in the best position to "fairly guide" the company to maximize shareholder value.

"We do not believe this offer is in the best interest of the shareholders," Westerman said. "Nor do we believe the recent nomination of an opposition board of directors by (Riv Acquisition) is advisable."

He also said the $27 per share offer is "about $4 below market."

A spokesman for Riv Acquisition said the investment group knew of the announcement and statements, but declined to comment.

New York-based Arrow Capital Management said Monday that it supports the Riv Acquisition's nomination efforts for a new board. Arrow controls 3 percent, 373,100 shares, of Riviera Holdings stock.

In 2006, Riviera Holdings rejected two takeover offers. Riviera Holdings shareholders on Aug. 30 voted down a $17 per share offer deal to sell the hotel-casino with 26 acres of Strip land and Riviera Black Hawk in Black Hawk, Colo., to Riv Acquisition Holdings.

On Sept. 6, Riviera Holdings rejected an offer of $20 per share by International Gaming & Entertainment. Riviera Holdings said it didn't get adequate information to review and assess the bid, which had come Aug. 8, despite repeated requests.

On Monday, Riviera Holdings said it secured $245 million in financing to retire old bonds. University of Nevada, Las Vegas finance professor Mike Sullivan said the move could give Riviera Holdings more flexibility to fend off takeover offers if it so wishes.

Even as the fate of its parent company remains uncertain, the Riviera on the Strip continues to thrive. It is taking advantage of recent closings of other gaming properties, notably the Stardust in November. The Riviera increased its net income 4 percent to $6.9 million from $6.6 million in 2006.

Room occupancy revenue increased $1.5 million with an occupancy rate of 93.2 percent, up from 90.9 percent in 2006.

The local property's first-quarter net revenues increased 0.1 percent to $38.5 million from $38.4 million a year earlier.

Riviera Holdings' cash flow, defined as earnings before interest, taxes, depreciation and amortization, increased 9.4 percent to $12.5 million from $11.4 million a year earlier, but the local property was only able to realize a 1.7 percent increase.

Casino revenues for the company increased 3.8 percent to $28.1 million, and room revenues increased 9.9 percent year-to-year.

Company officials said the increase in casino revenue was due to installing ticket in-ticket out slot machines at both properties and marketing campaigns.

Entertainment revenue at the Riviera declined $1.3 million due mostly to the closing of "Splash" in October.

Riviera Holdings shares rose 47 cents, or $1.51 percent, to close at $31.60.