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Howard Stutz

Deals on the Strip: Bidding for Aztar Heads Higher

1 May 2006

LAS VEGAS, Nevada -- Pinnacle Entertainment's last-ditch effort Friday to acquire the Tropicana and its parent company paid off, but only for a few minutes.

Aztar Corp. announced late Friday that it agreed to amend its merger agreement with Las Vegas-based Pinnacle, increasing the proposed purchase price to $48 a share.

However, in the same statement, the company said Kentucky-based Columbia Sussex raised its previously announced unsolicited offer for the casino operator to $50 a share, or about $2.56 billion.

A source close to the negotiations said the bidding war for Phoenix-based Aztar will likely extend into next week.

Aztar said the offer from Columbia Sussex, which operates four Nevada casinos, included a signed merger agreement and financing commitment letters. Columbia offered Aztar a "substantial deposit" on the deal, even if Columbia can't obtain regulatory approval for the transaction.

In a statement, Aztar's board of directors said the Columbia offer "is reasonably likely to result in a superior proposal," as defined by the merger agreement with Pinnacle.

"Aztar's Board is not making any recommendation at this time with respect to such offer, and there can be no assurance that Aztar's Board will approve any transaction with Columbia," according to the statement.

The action capped a flurry of activity Friday in the bidding war for Aztar, which operates the Tropicana casinos in Las Vegas and Atlantic City and three smaller casinos in Laughlin, Missouri and Indiana.

Pinnacle's offer, announced Friday morning, included $45 per share in cash and $3 per share of Pinnacle common stock. The fully financed transaction, estimated at $2.46 billion, included about $1.85 billion in equity and about $677 million in debt, Pinnacle said.

Pinnacle hoped its offer, which expired at 2 p.m. Friday, would top a $47 a share offer proposed Tuesday by rival Ameristar Casinos, and Columbia's previous bid of $47 a share.

Gaming analysts were not thrilled with the Pinnacle offer because they thought the company was overpaying.

"We are hopeful this is as far as the company will stretch, although both Pinnacle and Ameristar have started to create the perception they will go as far as it takes to win this war," gaming analyst George Smith of Davenport & Co. said in a note to investors.

Adam Steinberg of Morgan Joseph thought Pinnacle should not have offered stock to raise the price.

"We are disturbed that Pinnacle management has included shares in the latest offer for Aztar, as the equity component will dilute current shareholders," Steinberg said in an investors note. "However, we do recognize the strategic significance of using shares in that Ameristar may be reluctant to issue shares and reduce insider holding below 50 percent."

Wall Street also wasn't fond of Pinnacle's bid. Shares in the company closed Friday in trading on the New York Stock Exchange at $27.30, down $1.60 or 5.54 percent. More than 2.3 million Pinnacle shares were traded, three times the average daily volume.

Pinnacle signed the original merger statement with Aztar on March 13, agreeing to acquire the Phoenix-based casino operator for $38 a share. Since that time, 11 offers have been floated by four companies.

Pinnacle's ace in the hole is the breakup fee Aztar would have to pay if the deal falls through. If the merger collapses, Aztar must pay Pinnacle $49.6 million as a termination fee and cover up to $16 million in expenses.

Aztar had $915 million in revenue in 2005.

Pinnacle, which generated $726 million in annual revenue, has properties in Reno, Indiana, Louisiana and Argentina.

Ameristar, had gaming revenues $961 million in 2005, owns casinos in the Northern Nevada community of Jackpot, Missouri, Mississippi and Colorado.

Gaming analysts have said it made sense for both Pinnacle and Ameristar to want Aztar, whose acquisition would transform the winning company from a regional operator to a gaming corporation with a national presence.

Shares of Aztar closed Friday on the New York Stock Exchange at $47.50, up 51 cents, or 1.09 percent.