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Howard Stutz

Ameristar Matches Highest Bid for Aztar

26 April 2006

LAS VEGAS, Nevada -- Las Vegas-based Ameristar Casinos on Tuesday matched the highest offer to date in the bidding war for takeover target Aztar Corp., saying the Tropicana's parent is worth more than $2.41 billion.

Ameristar, which operates casinos in Jackpot and also in Mississippi, Colorado and Missouri, said it would pay $47 a share for Phoenix-based Aztar's outstanding stock.

In a statement, Aztar said the Ameristar proposal was "superior" when compared with the company's current merger agreement with Pinnacle Entertainment.

On Monday, Las Vegas-based Pinnacle upped its offer for Aztar to $45 a share. Aztar's board of directors has not made a recommendation to accept or reject Ameristar's offer.

Phoenix-based Aztar also has unsolicited bids of $41 a share by Colony Capital and $47 a share by Columbia Sussex, two privately held casino operators.

In total, Aztar has received nine different bids or amended bids for the company since March. Aztar, which also operates the Tropicana Atlantic City and three smaller casinos in Laughlin, Missouri and Indiana, had revenues of $915 million in 2005.

"It's dizzying," CRT Capital Group gaming analyst Steve Ruggiero said. "I guess the ball is now in Columbia's court. It's up to them to decide if they want to increase their offer. The other question mark is Colony. We haven't heard from them."

Analysts said Ameristar had presented a letter to Aztar's board of directors, detailing its financing for the buyout. Columbia Sussex's offer did not come with any financing commitments.

"The latest offer from Ameristar also renders the Columbia Sussex bid irrelevant," Morgan Joseph gaming analyst Adam Steinberg said in a note to investors. "Since announced, we have largely discounted the Columbia offer because of potential licensing and financing concerns."

Aztar must wait three business days before it can terminate its merger agreement with Pinnacle. If that happens, Aztar must pay Pinnacle a termination fee of $49.6 million and up to $16 million in expenses.

Wall Street's reaction Tuesday, analysts said, suggested that investors expect another offer from either Columbia Sussex, which owns four Nevada casinos, or Colony Capital, which owns the Las Vegas Hilton. Some thought Pinnacle will drop out of the bidding.

Aztar traded up much of the day on the New York Stock Exchange, closing at $47.18, up 84 cents.

"At $47 a share, the offer is dilutive to both Aztar and Pinnacle," Ruggiero said, adding that Pinnacle's termination fee would be worth $1 a share to the company. "Pinnacle could step back unless (Pinnacle Chairman) Dan (Lee) is looking more toward the future."

Steinberg thought Pinnacle and Ameristar, even at $45 a share, were paying too much for Aztar.

"We previously downgraded both Ameristar and Pinnacle based on their competing $45 per share offers for Aztar, as we believe the purchase price is too high for Aztar's assets," Steinberg said. "Our concern relates to low projected returns on a redevelopment of the Las Vegas Strip, as well as the investment needed to upgrade the other Aztar properties."

Buying Aztar would give either Pinnacle or Ameristar a foothold in the two major U.S. casino markets, Las Vegas and Atlantic City. A deal would also transform the winner from a regional casino operator to a top-tier casino company.

Ameristar had gaming revenues of $961 million in 2005. Pinnacle, through its casino holdings in Reno, Indiana, Louisiana and Argentina, reported revenues of $726 million in 2005.

Although the Tropicana Atlantic City has undergone $245 million in renovations over the past two years, the Las Vegas Tropicana has deteriorated. The property sits on a 34-acre Strip location and the existing hotel-casino would most likely be imploded.

Ameristar shares fell 98 cents Tuesday to close at $24.62 on the Nasdaq National Market. Pinnacle shares fell 20 cents to close at $29.18 on the New York Stock Exchange.