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Howard Stutz

Ameristar Raises Bid for Tropicana Parent

24 April 2006

Another day, another offer for Aztar Corp.

The bidding war for the Phoenix-based operator of the Tropicana is starting to resemble an eBay auction.

Las Vegas-based Ameristar Casinos increased its bid to buy out Aztar for the second time this week Friday, telling the company it would pay $45 a share for its outstanding common stock while assuming Aztar's debt.

On Monday, Ameristar, a regional casino operator with properties in Missouri, Mississippi, Colorado and the Northern Nevada community of Jackpot, said it would pay $43 a share for Aztar, $1 more per share than it had originally offered on April 3.

On Monday, privately held Columbia Sussex entered the game. The Kentucky-based owners of four Nevada casinos offered $47 a share for Aztar. Two days later, Ameristar rival Pinnacle Entertainment, the only company with a signed agreement to purchase Aztar, kicked up its offer from $38 a share to $43 a share.

Also in the wings is Las Vegas Hilton owner Colony Capital, which bid $41 a share for Aztar two weeks ago,

The bids have a valued range of between $2.27 billion to $2.47 billion. Aztar has stated that it would discuss the offers with each company.

Aztar, which also operates the Tropicana in Atlantic City and casinos in Laughlin, Missouri and Indiana, has become a takeover target because of the lack of available land on the Strip. The aging Tropicana Las Vegas and its 34 acres of developable Strip real estate, has enticed perspective buyers.

According to a filing Friday by Aztar with the Securities and Exchange Commission, the Ameristar offer was to expire by noon today unless Aztar's board of directors met certain conditions, one of which was determining that the bid was better than Pinnacle's. Ameristar's offer also included a signed financing commitment letter.

Aztar said in its filing that the offer is "reasonably likely to result in a superior proposal," which would extend the bid five more days.

Pinnacle's one hole card is the signed deal it has with Aztar. If their agreement falls through, Aztar has to pay Pinnacle a $42 million break-up fee and cover up to $13 million in Pinnacle's expenses.

Gaming analysts need a scorecard to keep up with the players.

The battle has pitted two publicly traded companies, Pinnacle and Ameristar, who would gain competitive footholds by purchasing a company with holdings in Las Vegas and Atlantic City, with two privately held firms, Colony Capital and Columbia Sussex, who have deep pockets.

"We continue to believe the acquisition would make strategic sense for Pinnacle, transforming it from a regional operator to a national casino company with an extensive development pipeline," Deutsche Bank gaming analyst Marc Falcone said in a note to investors.

Pinnacle operates casinos in Indiana, Louisiana, Argentina and the Boomtown in Reno.

Morgan Joseph gaming analyst Adam Steinberg said that Ameristar may be biting off too much in trying to acquire Aztar.

"At the $45 level, we do not believe the acquisition is accretive to Ameristar earnings, nor do we believe it delivers value to shareholders as we differ from management in assessing the strategic significance of a Las Vegas location, particularly at prices implying $20 million an acre," Steinberg said in a note to investors.

Falcone believes Pinnacle could boost its offer up to $46 a share and still be a profitable casino operator.

Meanwhile, Steinberg said the private companies may hold all the cards.

"As the bidding process for Aztar has continued, speculation continues to center on Colony Capital and Columbia Sussex as the eventual winners because they are private companies," Steinberg said in his note.

"However, management and insiders own approximately 56 percent of Ameristar, compared with insider holdings of 4 percent for Pinnacle. While Ameristar must answer to its shareholders, the majority owner (company Chairman Craig Neilsen) still has the final say and is in favor of acquiring Aztar."

He added that Colony Capital has been silent on the matter for a few weeks because it is still doing its due diligence in looking at Aztar.

Falcone said that despite Columbia Sussex's $47 a share bid, Aztar is still waiting for a financing commitment letter. He said the lower bids indicate that Pinnacle and Ameristar believe Columbia might have licensing difficulty in Missouri.

In stock market trading Friday, shares in Ameristar closed at $25.44, off 25 cents or 0.97 percent; while Pinnacle shares closed at $30.97, down 82 cents or 2.58 percent. Aztar shares closed at $46.35, up 34 cents or 0.74 percent.