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Arnold M. Knightly

Station Casinos rejects Boyd offer

4 March 2009

LAS VEGAS, Nevada -- Station Casinos' board of directors on Tuesday officially rejected Boyd Gaming Corp.'s unsolicited $950 million offer for a majority of Station's assets.

It is "in the best interest of the company and its stakeholders to proceed with the company's restructuring plan," Station said in a letter sent to its main rival in the locals gaming industry.

Rob Stillwell, Boyd's vice president of corporate communications, said the company will respond to Station's rejection letter today.

But he said Tuesday afternoon that "we remain interested in acquiring some or all of the assets of Station Casinos."

Bill Lerner, a gaming analyst with Deutsche Bank, said Station's rejection of the buyout offer makes sense.

"The reasoning on why they rejected this current offer makes sense to me," Lerner said. "They feel there is notable risk that the deal might not close, and if that happens, they've disrupted the prepackaged proposal, and that changes everything."

On Feb. 2, Station announced a "prepackaged" bankruptcy plan that would give bondholders who hold $2.3 billion of Station's debt between 10 cents and 50 cents on the dollar in new notes and cash.

Under Station's plan, the company would enter into a voluntary Chapter 11 bankruptcy and the gaming company's owners -- the Fertitta family and real estate investment firm Colony Capital -- would put $244 million in cash into the company.

An earlier debt exchange was rejected by bondholders in November. That proposal did not include any kind of cash infusion by the company's owners.

Station's rejection came on the same day that the company announced it had reached agreements with most of its debt holders to extend a deadline to vote on the company's bankruptcy proposal.

The agreements "will provide the company with additional time to continue discussions regarding terms of its plan of reorganization," Stations said in a statement.

The agreement gives Station and its debt holders until April 10 to vote on the proposed debt swap and restructuring.

The agreement was signed hours prior to Monday's midnight deadline for the bondholders to vote on the restructuring plan.

Mike Sullivan, a finance professor at the University of Nevada, Las Vegas, said Boyd Gaming's offer made Station's deal less attractive for bondholders.

"Station is asking bondholders for another month to figure things out," Sullivan said. "I suspect (Station Casinos) will sweeten the pot a little bit, if they can."

Lerner suggested Station might have rejected the buyout offer because it could be "hypersensitive" to sharing company finances and other confidential information with its biggest competitor in today's economic environment.

Boyd Gaming, however, could come back with another offer that addresses some of Station's concerns, Lerner said.

He said Station's board will judge offers based on what's best for the company, not what's best for the Fertitta family, which founded the company in 1976 and owns 25 percent of the company but controls three of the board's five seats.

The letter to Boyd Gaming, signed by Chairman and Chief Executive Officer Frank Fertitta III, said Station will not take "any steps towards pursuing, a sale of all or any portion of the company's assets."

Station Casinos owns 13 casino properties -- including Red Rock Resort, Sunset Station, Palace Station and Boulder Station -- in Clark County.

The company is also partner in five 50-50 joint ventures with Greenspun Corp., including Green Valley Ranch and the newly opened Aliante Station in North Las Vegas.

Boyd offered to buy Santa Fe Station, Texas Station, the 94-acre Wild Wild West site on Tropicana Avenue west of Interstate 15, two Fiesta properties, the Greenspun joint ventures and several nonhotel casinos.

The deal would leave Station Casinos with four hotel-casinos carrying $2.5 billion of debt.

Station Casinos cited the "highly conditional nature" of Boyd Gaming's offer, as well as the risks "in sharing sensitive and confidential information with a significant competitor" and potential harm to "stakeholders" as reasons for rejecting the offer.

"The board also considered the potential harm that would result to the company's stakeholders if such a proposal was delayed or could not be completed," the letter read.

The letter, addressed to Boyd Gaming Executive Chairman Bill Boyd and CEO and President Keith Smith, expressed concern about "Boyd's potential inability to perform due to its own financial position."

Boyd Gaming closed trading Tuesday at $3.69 on the New York Stock Exchange, down 9 cents, or 2.38 percent. Shares of Boyd were trading at $26.25 a year ago before falling to $2.81 during last November's stock market crash.

Boyd Gaming posted a net loss of $223 million last year, driven by 12.1 percent decrease in revenues to $1.8 billion from $2 billion in 2007.

Boyd Gaming now has a $2.6 billion debt load, $2.1 billion of which doesn't mature until 2012.

Boyd Gaming operates nine casinos in Las Vegas and Henderson including Sam's Town on Boulder Highway, the Suncoast in Summerlin and The Orleans on Tropicana Avenue.

The company also owns six properties in Louisiana, Mississippi, Illinois and Indiana, and has a 50 percent stake in the Borgata in Atlantic City.

The terms of Station's new forbearance agreement, which expires April 15, reveal the company skipped its third debt payment in a month.

The agreement, however, prevents bondholders from declaring default on the missed payments -- a $24 million debt payment due March 1 with a 30-day grace period to March 31, along with $14.6 million and $15.5 million payments skipped in February -- prior to April 15 when the forbearance agreement expires.

Station Casinos rejects Boyd offer is republished from