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Best of Howard Stutz

Gaming Guru

Howard Stutz

Investment group launches second run at Riviera

27 March 2007

LAS VEGAS, Nevada – For the second time in 12 months, a high-profile private investment group, which includes the founder of Starwood hotels and a Las Vegas real estate developer, is trying to acquire the parent company that owns the Riviera.

Riv Acquisition Holdings, which controls about 20 percent of Riviera Holdings Corp., offered Monday to pay $27 a share for the outstanding shares of the company, which controls the 52-year-old Strip property and a slot machine casino outside Denver.

In a letter to the Riviera board of directors, filed with the U.S. Securities and Exchange Commission, Riv Acquisition Holdings gave the company until 5 p.m. Friday to respond to the offer.

Riviera Chief Financial Officer Mark LeFever said Monday the company had no comment.

The linchpin in the deal is the 2,070-room Riviera and its valuable 26-acre north Strip land parcel that has access both off the Strip and Paradise Road. Most analysts believe the site is valuable because it is one of the northern Strip's last available land parcels.

"There are a limited number of gaming sites that drive interest in and around the Strip," said Brian Gordon, a partner in Las Vegas-based financial adviser Applied Analysis. "A deal for the Riviera and others could be setting new high water marks in terms of price per acre."

Paul Kanavos, a managing member of New York-based Flag Luxury Properties, signed the letter to the company's board, saying the conditions of the proposed deal are similar to the offer the group made in April last year, when Riv Acquisition offered $17 a share for Riviera Holdings.

"We are prepared to immediately enter into a merger agreement with Riviera on substantially the same terms as the April 5, 2006, merger agreement between our acquisition vehicles and Riviera," Kanavos wrote. A spokesman for Kanavos said there wouldn't be any additional comment beyond the letter.

The cash deal is valued at $336.4 million based on 12.46 million outstanding shares of Riviera Holdings. In addition, the investment group was willing to help Riviera Holdings refinance the company's $210 million in outstanding debt.

The offer helped fuel a price increase Monday in Riviera Holdings shares. The company closed at $28.10, up $2.63 or 10.33 percent in trading on the American Stock Exchange.

Kanavos said Riv Acquisition was exploring alternatives that would help close the deal prior to receiving regulatory approval in Nevada and Colorado. He said most of the principals in Riv Acquisition have already filed licensing applications with gaming authorities in both states.

In addition to Kanavos, Riv Acquisition includes his partner in Flag Luxury, Robert Sillerman, whose respective holdings include Ritz-Carlton resorts and the branding rights to Elvis Presley and the "American Idol" television program. Also part of Riv Acquisition are Starwood Capital Group founder Barry Sternlicht and local real estate developer Brett Torino.

Last year, Riviera shareholders rejected the $17 a share offer by Riv Acquisition believing the bid was too low and not reflective of current Strip land values. Three large Riviera shareholders with an estimated 19 percent of the company, D.E. Shaw & Co., a New York asset management firm; Alberta, Canada-based Triple Five Group; and Plainfield Asset Management, a hedge fund based in Greenfield, Conn., all voted against the bid.

D.E. Shaw participated in a $21 a share offer for Riviera Holdings last December with developer Bruce Eichner, but the deal collapsed when the 30-day negotiating period expired without the parties reaching a purchase agreement.

Representatives from Shaw and Eichner, who is building the $1.8 billion Cosmopolitan hotel, casino and condominium project next to the Bellagio, did not wish to comment on the proposal Monday.

Another Riviera shareholder, Derek Stevens of Desert Rock Enterprises, who controls a little more than 1 million shares of Riviera, said he thought the price was low based on recent deals and potential Strip transactions.

"In my opinion, $27 a share doesn't reflect today's land prices on the Strip," Stevens said. "There are a lot of changing dynamics on the Strip and the value has escalated dramatically."

Last month, a Los Angeles-based entertainment group announced it was buying the Sahara in a deal estimated at between $300 million and $400 million, or between $17 million and $23 million an acre.

Last week, a Web site reported that a New York real estate firm wanted to pay $1.5 billion for the New Frontier, or $40 million per acre. On Monday, New Frontier owner Phil Ruffin said he canceled a meeting with the potential New York buyer, El Ad Properties, saying the talks had collapsed.

Ruffin had been scheduled to meet with El Ad executives today, but said he canceled the trip to New York after it was apparent the deal would fall through.