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Howard Stutz

Deals on the Strip: Pinnacle Sweetens Bid for Aztar

8 May 2006

LAS VEGAS, Nevada -- Las Vegas-based Pinnacle Entertainment agreed late Friday to increase its price to buy Tropicana parent Aztar Corp., raising the cost of the deal to $2.58 billion.

Pinnacle, a regional casino operator without a property in Las Vegas, amended its signed merger agreement with Aztar for the fourth time, agreeing to pay $51 a share for the company, $47 in cash and $4 in Pinnacle stock. The company made a similar offer late Thursday afternoon, but Aztar did not respond by the time the offer expired seven hours later.

For much of Friday, it appeared privately held Columbia Sussex Corp. had won the nearly two-month bidding war for Aztar, agreeing to pay $50 a share, or $2.56 billion, for the company, which also owns the Tropicana Atlantic City and three smaller casinos in Laughlin, Missouri and Indiana.

In a statement Friday afternoon, Aztar said the company's board of directors had determined that Pinnacle's offer was superior to Columbia Sussex's bid, which expired earlier Friday.

Before Pinnacle and Aztar agreed to the deal, Columbia Sussex was the front-runner. Pinnacle pulled its bid Thursday night, and Aztar, in a statement, complained its board didn't have enough time to evaluate the deal.

"The time frame available for acceptance was insufficient for Aztar's board to make a decision consistent with the board's fiduciary duties," the company statement said.

One gaming analyst thought that comment was preposterous.

"This is somewhat curious in our view since Aztar's lone duty is to evaluate any and all potentially superior bids," Mario Kontomerkos of JP Morgan Securities said in a note to investors early Friday. "Nevertheless, it is our belief that Aztar will have to eventually respond to Pinnacle's intent to submit a potentially superior bid. The bigger question may now be whether Pinnacle will offer it again."

That question was answered by 5 p.m.

In addition, Pinnacle and Aztar agreed to increase the termination clause in the merger agreement. If the deal collapses, Aztar will have to pay Pinnacle a breakup fee of $52.2 million and cover legal expenses of up to $25.8 million. Previously, Aztar would have had to pay a $49.6 termination fee and $16 million in expenses.

A spokeswoman for Pinnacle declined to comment on any aspects of the Aztar negotiations.

The bid was the 14th offer for Aztar since March 13, when Aztar agreed to be purchased by Pinnacle for $38 a share, or $2.1 billion.

Since that time, three other casino companies bid on Aztar, with the prize being the Tropicana's 34-acre Strip location.

Last week, Pinnacle bid $48 a share for Aztar, $45 in cash and $3 in stock, but was trumped by the all-cash $50 a share offer from Columbia Sussex the same day.

When Aztar deemed Columbia Sussex's offer superior on Monday, that triggered a 72-hour expiration clause in the Pinnacle deal.

In its earlier statement, Aztar said its merger agreement with Pinnacle was still in effect Friday. The company's board hadn't made a recommendation on the Columbia offer.

Kontomerkos said he thought Pinnacle's $51 a share offer was better than the Columbia Sussex deal.

"We believe Pinnacle's bid could still be deemed superior because a merger with a strategic sponsor such as Pinnacle would not only be good for Aztar shareholders, in our view, but also good for other stakeholders in the company, such as employees," he said.

Aztar shares rose 68 cents, or 1.39 percent, to $49.43 Friday on the New York Stock Exchange. Shares of Pinnacle Entertainment, which operates casinos in Reno, Louisiana, Indiana and Argentina, fell 3 cents, or 0.1 percent, to close at $30.12 on the NYSE.

On Wednesday, it appeared Pinnacle Entertainment, which generated $726 million in revenue in 2005, had turned its attention to the other end of the Strip. Company Chairman Dan Lee reportedly spent part of Wednesday touring the Sahara with a representative of CB Richard Ellis, a commercial real estate company. The Sahara has also been considered a takeover target.

Two other companies had bid on Aztar. Ameristar Casinos dropped out of the bidding this week while Las Vegas Hilton owner Colony Capital, which bid $41 a share in late March, hasn't been heard from since.