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Best of Howard Stutz

Gaming Guru

Howard Stutz

Gaming Companies: New Bid Puts Riviera Vote on Hold

9 August 2006

LAS VEGAS, Nevada -- An unsolicited 11th-hour bid from a competing investment group scuttled Tuesday's planned buyout vote by Riviera Holdings Corp. shareholders, placing a $426.5 million offer for the two-casino company on hold at least until the end of the month.

Riviera management said it needs time to ascertain if a $20 a share proposal for all outstanding shares of Riviera Holdings by a privately held group called International Gaming and Entertainment is credible.

In a statement, Riviera Holdings said the new bid came without a commitment for financing the deal, leading to skepticism from investors attending Tuesday's shareholders meeting.

"That fact is kind of troublesome. It's very speculative," said Roy Smolarz of New York-based Rock Creek Capital Advisors. He said the investment bank is advising other potential investors who are looking at Riviera Holdings.

Riviera Holdings needs to determine if the bid would be superior to a $17 per share agreement signed in April with Riv Acquisition Holdings, a well-financed investment group that includes Starwoods Hotel chain founder Barry Sternlicht, Las Vegas developer Brett Torino and Chicago developer Neil Bluhm.

The vote was rescheduled for Aug. 29.

Riviera Holdings shareholders approved the re-election of the company's board of directors Tuesday, but management held off on a vote whether to accept the Riv Acquisition offer.

That deal had been called into question by several large Riviera shareholders, who had planned to reject the offer because they believed there was more value in the company than the agreed upon price. Several gaming analysts thought the dissident shareholders had enough votes to turn down the offer.

Riviera Holdings needed an affirmative vote from 60 percent of its outstanding shareholders in order to approve the merger.

The new bid, credible or not, complicated the future of the 51-year-old Riviera, one of the Strip's oldest casinos.

"I wish they would have held the vote anyway, just to get that part done," said Mark Sole, a senior vice president for New York investment bank D.E. Shaw Group, which controls 1.2 million shares of Riviera Holdings and had planned to vote against the merger.

"We don't know anything about this new bid. We'll just have to see what the board decides to do with it," Sole said.

Riviera Holdings Chairman Bill Westerman, who lobbied shareholders to approve the buyout by Riv Acquisition during the company's July 28 quarterly conference call, said the new bid was received late Friday afternoon.

"We had not had a credible offer other than the merger agreement with Riv Acquisition, and I made that pretty clear to our shareholders," Westerman said after the meeting. "We need to determine if this offer truly is credible."

International Gaming and Entertainment said it was affiliated with BT Enterprises, a Boston-based merchant equity fund. Principals include Jeffrey Wu, Michael Signorelli and Bagus Tjahjono.

Wu is the majority shareholder and a director of United International Bank in New York, which, according to its Web site, serves New York's Asian-American community.

Signorelli had been a principal in the defunct NevStar Gaming Entertainment Corp., which in the late 1990s operated the Mesquite Star casino in Mesquite. The company had announced plans to build a $140 million hotel-casino in North Las Vegas, but never followed through.

In Riviera's statement, International Gaming and Entertainment told the board of directors its investors had "a sufficient amount of equity capital to complete the acquisition of Riviera as contemplated."

Riv Acquisition President Scott Butera said the investment group wasn't dismayed by the new proposal. He said the merger agreement with Riviera Holdings contains a termination agreement in which they would be paid a fee if the deal collapses.

It was too soon to say if Riv Acquisition would increase its current offer if the new bid is accepted, Butera said.

"We're proceeding with obtaining gaming licensing and we fully expect our deal to go through," Butera said. He said Riv Acquisition had completed its buyout of Westerman's holdings in the company for $15 a share, making the investment group the company's largest shareholder with more than 2.1 million shares.

Some investors thought Riv Acquisition's purchase offer was too low, saying the 26 acres of Strip property that houses the Riviera was worth twice the current purchase price, which values the land at $10 million an acre.

Tuesday's offer sent shares of Riviera higher in trading on the American Stock Exchange. The company's stock price closed at $20.46, up 75 cents, or 3.81 percent. Shares traded as high as $21.10 during the session.

Morgan Joseph gaming analyst Adam Steinberg, who had predicted Riviera shareholders would reject the Riv Acquisition offer, said it will be interesting to see if the new bid holds up under scrutiny.

"If they have the equity portion, then all they need to do is finance the debt," Steinberg said.