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Howard Stutz

Largest Affinity Gaming shareholder proposes buying all outstanding shares

12 February 2013

LAS VEGAS -- The largest stockholder in Affinity Gaming has proposed purchasing all outstanding shares of the Las Vegas-based casino operator at a 22 percent premium over the current value.

In a letter Monday to Affinity's board of directors that was filed with the Securities and Exchange Commission, Illinois-based Z Capital Partners, which owns 30.5 percent of the company, offered $14 a share for the remaining stock.

"Given the size of Affinity Gaming and that we already have a strategic ownership in Affinity Gaming, we believe this to be a fair price, and we are convinced that your stockholders will find our offer extremely attractive," Z Capital CEO James Zenni wrote in the letter.

Z Capital controls more than 6.17 million of Affinity's more than 20.2 million shares.

The transaction would be valued at almost $196.8 million.

Affinity Gaming operates casinos in Nevada, Colorado, Iowa and Missouri. In Las Vegas, the company operates the three Primm resorts and the off-Strip Terrible's. The company was created following the bankruptcy reorganization of Herbst Gaming in December 2010.

Affinity Gaming was owned by former lenders and bond holders of Herbst Gaming. Z Capital has slowly acquired shares of Affinity Gaming over the past 18 months. Affinity Gaming has publicly held debt.

Before Z Capital's taking lead ownership, Silver Point Capital, a Greenwich, Conn.-based hedge fund, had been Affinity's largest shareholder with almost 19 percent of the company.

Affinity Gaming declined comment on Monday's filing.

In December, Nevada gaming regulators found Zenni to be a suitable shareholder in Affinity. Z Capital announced in November it planned to increase its ownership in Affinity to more than 33 percent.

Zenni said the existing Affinity Gaming management team would remain in place.

"We have consistently expressed our support of management and our belief that their experience and commitment to Affinity Gaming are vital for maximizing equity holder value," Zenni said. "We call on the board to join us in supporting them and believe that anything less would diminish Affinity Gaming's value."

In October, Zenni questioned a $300,000 payment made to Affinity Chairman David Kornstein as "highly unusual."

Kornstein helped negotiate a three-way asset swap and sale among the company, Golden Gaming and JETT Gaming.

Affinity disposed of its Nevada slot machine route operations and acquired three Colorado casinos.

Zenni said it was not normal corporate governance for board members to earn investment banking success fees for brokering deals.

"We communicated our view to the board," Zenni said told the Nevada Gaming Commission in December. "Board members can't be acting as investment bankers. I'm a tip of the iceberg kind of guy. When I see things like that, I wonder what other items are under discussion."

In his letter, Zenni said the offer expires Friday.

"It is our strong preference to work together immediately to negotiate a definitive merger agreement, Zenni wrote. "From our perspective, the benefits to Affinity Gaming's equity holders should provide a meaningful impetus for you to seriously investigate this opportunity."

Z Capital was formed in 2007 and has made more than 100 transactions and invested more than $1.2 billion into various businesses. Among the company's holdings are Mrs. Fields Cookies and Real Mex Restaurants, which includes the El Torito and Chevy's brands.