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Howard Stutz

Mergers and acquistions: New bid for Riviera parent

14 November 2006

LAS VEGAS, Nevada -- A New York developer who is spearheading construction of a Strip hotel and condominium project has joined forces with a New York-based asset management firm in an attempt to acquire Riviera Holdings Corp., it was announced Monday.

Bruce Eichner, who is building the $1.8 billion Cosmopolitan next to Bellagio, and D.E. Shaw and Co. have offered $21 a share for control of the Riviera in Las Vegas and a slot machine casino in Black Hawk, Colo., outside Denver.

The offer is valued at more than $470 million; $262.5 million for the 12.5 million outstanding shares of Riviera Holdings, and assumption of the company's estimated $210 million in debt.

In a statement, Riviera Holdings said it signed a 30-day exclusive negotiating agreement with the parties after the offer was received Friday. The company also adopted resolutions to give the bidders the ability to negotiate the bid together and seek approvals for the transaction.

Eichner, who has developed commercial, residential and hospitality projects in the Northeast and Florida, said Monday he hoped a deal could be reached. He said he owns 600,000 shares of Riviera Holdings that he has bought in the past year. Eichner's Cosmopolitan has been under construction for more than a year and will include 3,000 hotel rooms and condominium units, and a 75,000-square-foot casino.

"You have a board of directors that wants to sell and you have people making an offer who want to buy, so maybe the shareholders would support this offer," Eichner said.

The news was announced before the stock market opened for trading Monday. Shares of Riviera jumped 4.19 percent on the American Stock Exchange to close at $21.14, up 85 cents.

The bid comes almost three months after Riviera shareholders turned down a $17 per share offer for the company by a high-profile group known as Riv Acquisition Holdings. D.E. Shaw, which controls 1.2 million shares of Riviera, was one of the more vocal opponents of the offer.

D.E. Shaw Senior Vice President Mark Sole said the firm's establishment of a real estate private equity group, and recent private equity deals within the gaming industry involving Colony Capital's purchase of the Las Vegas Hilton and Oaktree Capital's partnership with Cannery Casino Resorts, spurred the investment firm's interest in becoming more than just a shareholder in Riviera Holdings.

"The timing seemed right for us to explore this type of deal," Sole said.

In the letter to the Riviera board, Eichner and George Rizk, head of D.E. Shaw real estate investments, said the deal would be financed through a combination of equity financing and debt financing.

At least two other large shareholders joined D.E. Shaw in opposing the Riv Acquisition proposal in August, including Edmonton, Alberta-based Triple Five Group and Plainfield Asset Management, a hedge fund based in Greenfield, Conn. Those two companies each own about 9 percent of Riviera Holdings' stock.

The deal was rejected because shareholders thought the company's 26-acre north Strip parcel, which houses the 2,070-room Riviera, was more valuable than the price-per-share.

"The shareholders have said they wanted a more attractive offer, and we believe that's what we have given them," Eichner said.

Morgan Joseph gaming analyst Adam Steinberg thought the bid was about right in evaluating the company.

"In our view, the $21 a share offer more fairly values the company's 26 acre land holdings in Las Vegas and the casino in Black Hawk," Steinberg said in a note to investors. "Assuming the offer to acquire Riviera is accepted by the Board and shareholders, we would expect the Black Hawk property to be sold."

Eichner, who has been residing in Las Vegas for three years while developing the Cosmopolitan, said the Riviera has tremendous potential because of its north Strip location. Nearby, Boyd Gaming Corp. is developing the $4 billion Echelon project, while projects by Wynn Resorts and Las Vegas Sands are spurring development northward along the Strip.

"It's not just the land, but it's the value of the operating business," Eichner said. "It's very attractive to be able to do something with an existing Strip property."

If the Riviera board of directors accepts the offer, Eichner and D.E. Shaw will have to gain the support of at least 60 percent of the shareholders to complete the transaction. Those stockholders include Riv Acquisition, which purchased the shares owned by Riviera Holdings Chairman Bill Westerman last year in a run-up to the buyout offer. Collectively, Riv Acquisiton owns nearly 20 percent of Riviera Holdings' outstanding shares.

Riv Acquisition's principals include billionaire developer Neil Bluhm; Starwood Capital Group founder Barry Sternlicht; local developer Brett Torino; and partners Paul Kanavos and Robert Sillerman, whose respective holdings include Ritz-Carlton resorts and the branding rights to Elvis Presley and the "American Idol" television program.

Riv Acquisition President Scott Butera said his group is still interested in owning Riviera Holdings.

"I think it's a credible offer from a credible group, but at this point, we're still committed to what we set out to do," Butera said. "We haven't changed our position. The difference is, another player is now involved."

Even though D.E. Shaw helped scuttle the Riv Acquisition bid, Butera said there is no animosity.

"D.E. Shaw is a terrific firm run by good people," Butera said. "Business is business."

Another large Riviera shareholder, Derek Stevens of Desert Rock Enterprises, who controls a little more than 1 million shares, said $21 a share is still not a good enough price for the company. Stevens said he opposed the Riv Acquisitions bid in August and will oppose the Eichner-D.E. Shaw offer, too.

"The Black Hawk casino has increased in value, the Las Vegas operations are up and land prices continue to escalate," Stevens said. "We view $21 a share as far below an equitable value."