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Best of Howard Stutz

Gaming Guru

Howard Stutz

Mergers and Acquisitions: Ante for Aztar Upped Again

17 May 2006

The end of the bidding war for Aztar may finally have arrived.

Kentucky-based Columbia Sussex Corp. topped its previous bid by $1 a share late Monday and Aztar Corp. declared the $54 a share offer superior to the company's signed merger agreement with Pinnacle Entertainment.

The $2.97 billion all-cash deal -- which includes acquiring all outstanding shares of Aztar stock, assuming the company's debt and converting bonds -- would allow Columbia Sussex to buy the Tropicana casinos in Las Vegas and Atlantic City and three small casinos in Laughlin, Indiana and Missouri, almost doubling its casino portfolio.

Las Vegas-based Pinnacle Entertainment has until late Thursday to decide if it wants to match or exceed the Columbia offer. The latest Aztar-Pinnacle merger agreement, signed May 5, calls for Pinnacle to pay $51 a share in cash and stock for Aztar, or $2.64 billion.

If that deal collapses, Aztar has to pay Pinnacle a deal termination fee of $52.2 million and pay up to $25.8 million of the company's legal expenses.

After Pinnacle's initial $2.1 billion agreement to purchase Aztar, 14 additional bids from four casino companies drove the price for Aztar almost a $1 billion higher than the original deal. Aztar's stock price, which has gained more than $20 in value since the beginning of March, also benefited from the interest.

Gaming analysts said Tuesday that it seems to be a foregone conclusion that Pinnacle, which started the back-and-forth bidding war March 13, will take its breakup fees and look elsewhere along the Strip for a Las Vegas casino.

"We believe that ($54 a share) is more than a full price for Aztar and we believe that Pinnacle should walk away with a $78 million breakup fee," Merrill Lynch gaming analyst David Anders said in a note to investors.

While buying the two Tropicana casinos would have given Pinnacle something it lacks, a presence in Las Vegas and Atlantic City, the price "simply seems to have gotten too rich," Davenport Equity Research analyst George Smith said.

Morgan Joseph gaming analyst Adam Steinberg also thought Pinnacle is finished bidding.

"I think so," Steinberg said. "They'll probably take the full three days, but I'd be surprised to see another bid."

Privately held Columbia Sussex has four casinos in Nevada; the off-Strip Westin, Caesars Tahoe and Horizon in Lake Tahoe and the River Palms in Laughlin. The company entered the bidding war April 17. Last Wednesday, the company offered $53 a share for Aztar, but Aztar's board of directors said it wasn't ready to declare the bid superior to Pinnacle's last offer.

Sources familiar with the negotiating process said Columbia Sussex upped the offer by $1 a share during discussions with the Aztar board.

In a statement, Columbia Sussex President and Chief Executive Officer Bill Yung III discounted analysts' predictions that the company might have trouble closing the Aztar purchase. Last year, the company dropped a bid to buy the President Casino in St. Louis after several contentious meetings with Missouri gaming regulators.

"We have a strong acquisition track record, having successfully closed 36 transactions in the last five years, including seven gaming acquisitions," Yung said. "And we are confident in our ability to obtain all necessary approvals to close this acquisition in a timely fashion."

A company spokeswoman said Yung would not comment beyond the statement.

Columbia Sussex said it would work with Aztar to sell its riverboat casino in Missouri to avoid any complications with that state's regulatory body. The company, which has been licensed in Nevada, Louisiana and Mississippi, said it expects to be licensed in New Jersey and Indiana.

As part of the merger agreement, Columbia Sussex deposited $313 million in a bank account, payable to Aztar if the deal collapses.

Also, Columbia Sussex agreed to increase the purchase price to just less than a penny a share if the transaction takes longer than six months to close. If the deal takes longer than nine months to complete, the cost of the transaction will increase to just less than 2 cents a share.

Aztar shares rose $1, or 1.95 percent, to close at $52.30 on the New York Stock Exchange. More than 4 million shares were traded, about four times the average daily volume. Pinnacle shares closed at $29.39, up $1.16 or 4.11 percent.