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Chris Jones

Riviera Boss Blasts Speculation

3 May 2006

The head of Riviera Holdings Corp. on Tuesday dismissed investor speculation surrounding his company's proposed sale, calling it an unnecessary distraction he hopes shareholders will soon sort through.

The Las Vegas-based company, which owns the 50-year-old Riviera and a small casino outside Denver, on April 6 announced plans to sell its holdings to a private investment group called Riv Acquisition Holdings.

That $426.5 million agreement calls for most outstanding Riviera shares to be acquired for $17 apiece.

But the D.E. Shaw Group, which claims to be Riviera Holdings' largest shareholder with nearly 1.27 million shares, on April 10 sent Riviera Chairman Bill Westerman a letter opposing the deal, which it claims "substantially undervalues" the Riviera's 26-acre site on the north Strip.

Westerman fired back Tuesday during a conference call discussing the company's first-quarter earnings.

He blamed the media and D.E. Shaw for fueling speculation that has driven Riviera's stock price above the $17 mark. He added that, "No credible offers for Riviera have emerged from any other party at any price" since December.

The company's stock closed Tuesday's trading session at $21, down 4 cents.

Westerman recognized the effects of a continuing bidding war for Aztar Corp., which owns the Tropicana.

Regardless of what's happening elsewhere, he said management believes the deal with Riv Acquisition Holdings would fetch the best price for Riviera's shareholders.

That deal, which took several months to negotiate, was crafted with the assistance of New York-based investment bank Jefferies & Co.

Jefferies' staff "made numerous contacts with third parties who were viewed as potential strategic or financial buyers," though only one offer emerged, Westerman said.

Westerman encouraged Riviera stockholders to review an as-yet-unavailable proxy statement that will outline terms of the proposed sale.

He did not know when that statement would be released, though management is working "very aggressively" to get it done.

Riviera Holdings reported first-quarter income of $1.3 million, or 11 cents per share, in for the three months ended March 31, down from $2.1 million, or 18 cents per share, a year earlier.

Net revenue fell 1.5 percent to $51.7 million from $52.5 million.

Operating cash flow, a performance indicator defined as earnings before interest, taxes, depreciation and amortization, was more than $11.62 million, down slightly from last year's $11.63 million.

The latest numbers were dimmed when compared to last year's first quarter, which was the best in company history, Westerman said.

Gaming revenue at the company's Las Vegas flagship was down $565,000 in the quarter, a dip property President Bob Vannucci attributed in part to a soft Super Bowl week; an increase in conventioneers, who squeezed out leisure travelers who have more time to gamble; as well as slipping attendance at the Riviera's entertainment shows.

The Strip casino once held well-attended parties around the National Football League's championship game, frequently bringing in former players to mingle with fans. But the NFL recently cracked down on such events in Las Vegas and elsewhere, claiming they violate its Super Bowl copyright, and Vannucci said that crackdown curtailed repeat business in early February.

Recent conference calls suggest the Riviera is vulnerable to such dynamics it cannot control. In its fourth-quarter earnings report released March 8, Vannucci blamed that quarter's reduced casino performance to diminished interest in shows such as "Splash" and "Crazy Girls."

Room revenue rose 11 percent in the first quarter thanks to a nearly $11 increase in average daily rates at the 2,070-room Riviera Las Vegas. Nights occupied by convention guests increased by 11.5 percent.

"We continue to see strong demand for our rooms," Vannucci said in Tuesday's conference call.

The news was better from the company's Riviera Black Hawk casino in Black Hawk, Colo., where net revenue and cash flow each increased despite competition from nearby casinos in Black Hawk and Central City, Colo.

Would-be owner Riv Acquisition Holdings includes billionaire Neil Bluhm, a Chicago real estate developer; Barry Sternlicht, who founded Starwood Capital Group; Paul Kanavos, who recently developed two Ritz-Carlton properties in Florida; and longtime Las Vegan Brett Torino, whose résumé includes the Strip's $175 million Hawaiian Marketplace shopping plaza near MGM Grand.

The company said it would improve the Riviera, not redevelop it, should its sale be approved by shareholders and gaming regulators.