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Arnold M. Knightly

Station's sale clears obstacle

5 October 2007

LAS VEGAS, Nevada -- The $5.4 billion management-led buyout of Station Casinos took another step forward Thursday with the state Gaming Control Board's approving the locals gaming company's purchase by a joint-venture partnership.

Station Casinos is being bought by Fertitta Colony Partners, a partnership between members of the gaming company's founding family and Los Angeles-based real estate investment firm Colony Capital.

Station Casinos will be owned through private stock held primarily by the Fertitta family and a Colony Capital investment fund, with the gaming company's executives and senior management holding minor ownership shares once the deal closes.

The application, which was approved by all three board members in Carson City, will be considered for final approval by the Nevada Gaming Commission on Oct. 18 in Carson City.

The deal also needs approval of the National Indian Gaming Commission. The commission has not set a date to consider the deal.

Gaming Control Board Chairman Dennis Neilander said approving the buyout was an easy call because of the board's familiarity with the parties involved and because all principals are already licensed in the state.

The partnership will be controlled by Station Casinos Chairman and Chief Executive Officer Frank Fertitta III, company Vice Chairman and President Lorenzo Fertitta and Tom Barrack, founder, chairman and chief executive officer of Colony Capital.

Colony Capital was first licensed in Nevada in 1997 after the firm bought Harveys Lake Tahoe.

The firm sold Harveys to Harrah's Entertainment in 2000, and bought the Las Vegas Hilton for $280 million in 2004.

Lorenzo Fertitta assured the board that the company's management structure and strategic vision will not change with the ownership deal.

"We expect it to be business as usual for our team members and our customers," he said. "They should not see any change at all."

The Fertitta brothers will continue to operate the company day-to-day in their current positions.

Colony Capital's approval would be needed before any major actions, such as large construction projects and acquisitions, could be OK'd.

Lorenzo Fertitta said the company will continue to grow through expansions, land development and management contracts with American Indian casinos.

Financing for the deal will come from a combination of cash and stock contributions from the principals, land-leveraged loans backed by Deutsche Bank and JPMorgan Chase.

Neilander said the planned deal raised concerns with him because the company's debt will increase from $3.5 billion to $5.3 billion

"The only troubling thing to me is the company will be significantly more leveraged compared to what it is now," Neilander said.

Thomas Friel, Station Casinos' chief accounting officer, said 94 percent of the debt is already locked in at fixed rates and the company has a stable and predictable cash flow.

Station Casinos' cash flow has increased from $38 million in 1993, the year the company went public, to $535 million in 2006.

Net revenue has increased from $149 million to $1.3 billion during the same period.

Friel also pointed out that the company still has additional land that could be leveraged at a future date.

Lorenzo Fertitta said the buyout is in the best interest of the company's long-term operations and development.

"Going forward as a private company will allow us to execute our company's plans at a time and at a level of comfort that will work for us," he said.

Neilander did question, however, Station Casinos couldn't reach its growth goals as a public company

Station's sale clears obstacle is republished from