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Chris Jones

Riv Acquisition Holdings Pays $426.5 million for Casinos

7 April 2006

LAS VEGAS -- The Riviera's parent company on Thursday said it agreed to sell the 2,070-room hotel-casino after several months of on-again, off-again negotiations.

The buyer, an upper-end private investment group known as Riv Acquisition Holdings, will pay $426.5 million for the Riviera and its 26-acre site on the north Strip. The price includes the assumption of $215 million in Riviera Holdings Corp. debt.

Las Vegas-based Riviera Holdings included in the sale its Riviera Black Hawk, a 1,000-slot machine casino approximately 40 miles west of Denver in Black Hawk, Colo. The deal is expected to close in the first half of 2007.

Riv Acquisition Holdings President Scott Butera said Thursday the company will not raze the Riviera but keep it open while improvements occur. Entertainment and conventions should remain key elements of the resort.

"The game plan is clearly to ... commit the human capital and financial capital so that the property can be repositioned and over time become competitive with the rest of the assets on the Las Vegas Strip," Butera said. "We think there's some real nostalgic value to the Riviera brand."

The company will try to retain its current employees and management team, he added.

Butera did not say how much the group would spend to upgrade the Riviera, though he promised the end result would be more upscale than its current form while still offering a good value to guests.

Changes would begin once regulators approve the sale.

The properties' new owner includes four men who have collectively handled more than $35 billion in real estate deals since the early 1970s.

"We have a group that has a lot of patience, a lot of expertise and a lot of capital," Butera said. "If you apply those things to this asset, in time you could have a very attractive property that's a little like old-school Las Vegas.

"As the assets have gotten bigger and bigger, maybe there's a place for that mid- to upper-scale kind of property."

Billionaire Neil Bluhm has built or acquired offices, mixed-use projects and luxury hotels including Four Seasons properties in Chicago and Scottsdale, Ariz. Two years ago he teamed with Steve Wynn in an unsuccessful bid to place a casino in the Chicago suburb of Des Plaines, Ill.

Barry Sternlicht founded Starwood Capital Group, a real estate investment firm widely known for its Sheraton, Westin and St. Regis hotel brands.

Paul Kanavos launched Flag Luxury Properties and recently developed two Ritz-Carlton properties in Florida, while longtime Las Vegan Brett Torino's resume includes the Strip's $175 million Hawaiian Marketplace shopping plaza near MGM Grand.

Butera, who previously worked for Donald Trump's casino interests, said Sternlicht was once licensed by Nevada gaming regulators, though he expects those in the new ownership group will each need to go through the licensing process again.

Outstanding shares will be purchased at $17 each, a 13 percent premium from their March 22 value, the companies said. Riviera Holdings that day announced it had resumed negotiations with its eventual buyer at a fixed price of $17 per share.

Approximately 1.1 million of Riviera's 12.4 million outstanding shares will be acquired from Chairman Bill Westerman at a price of $15. The executive in January sold another 1 million share to Riv Acquisition Holdings for the same price, then a 23 percent premium over their trading value on the American Stock Exchange.

"A competing offer is always possible in this heated environment to acquire Las Vegas real estate parcels, but we believe $17 per common share is the appropriate price," Steve Ruggiero, an analyst with Stamford, Conn.-based CRT Capital Group, wrote in a Thursday investment note.

Phoenix-based Aztar Corp., which owns the Tropicana, last month entered a deal to sell its five casinos to Pinnacle Entertainment for $2.1 billion.

Las Vegas Hilton owner Colony Capital submitted a competing bid for Aztar last week, and Las Vegas-based Ameristar Casinos made its own $2.25 billion bid on Monday.

Reached by telephone Thursday afternoon, Riviera Holdings Chief Financial Officer Duane Krohn said the company has approximately 2,000 employees, including 300 to 400 part-timers.

He declined to discuss the deal further to avoid potential Securities and Exchange Commission violations.

Westerman said in a statement that he's pleased the company's long-term investors will receive a premium, adding management was gratified that the new owner "recognizes the value of the Riviera properties as an ongoing operating entity" and plans to invest more money into making the properties more competitive.

The Riviera opened in 1955 when Dwight Eisenhower called the White House home and Mickey Mantle roamed center field at Yankee Stadium.

In recent years, the resort's north Strip neighbors have slowly slipped away in favor of newer developments.

The $2.7 billion Wynn Las Vegas opened last year where the Desert Inn once stood, while Boyd Gaming Corp. plans to close the Stardust early next year to clear room for its $4 billion Echelon Place.

Across the street from the Riviera, bulldozers recently razed the Westward Ho. The El Rancho, one block directly north of the Riviera, was cleared years ago; the site is now slated to host the $1.5 billion, 4,000-room Fontainebleau Las Vegas hotel-casino.

Archon Corp. closed the popular Wet 'n Wild water park in 2004 to make room for an oft-delayed hotel-casino project.

For now, however, Butera said a wrecking ball is not on the horizon for the property affectionately dubbed "The Riv."