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Best of Howard Stutz

Gaming Guru

Howard Stutz

Pinnacle deal for buyout of Ameristar calls for sale of two properties

18 June 2013

LAS VEGAS -- Pinnacle Entertainment put its downtown St. Louis casino and a western Louisiana hotel-casino development on the market Monday to eliminate any federal antitrust issues surrounding the company’s $2.8 billion buyout of Ameristar Casinos, Inc.

An agreement with the Federal Trade Commission is still subject to the negotiation of a consent order, commission approval and regulatory gaming approvals, Pinnacle said in a statement.

The FTC blocked the merger between the Las Vegas-based regional gaming giants, saying to could hurt competition in the Missouri and Louisiana casino markets.

If the consent order is reached with the FTC, Pinnacle could close the buyout of Ameristar by September and come away with a time period to sell the casinos.

Pinnacle said it intends to sell Ameristar’s planned $580 million casino-hotel development project in Lake Charles and Pinnacle’s Lumiere Place Casino, HoteLumiere and the Four Seasons Hotel in St. Louis.

The casino transactions would subject to gaming regulatory approvals in Missouri and Louisiana.

The Ameristar buyout had been approved by company stockholders and Nevada gaming regulators, but the FTC said the deal would give Pinnacle market controlling casino ownership in St. Louis and Lake Charles.

As the Ameristar deal stands now, Pinnacle would own three of the four casinos in the St. Louis area and control 58.4 percent of that market. The FTC said the St. Louis region includes two casinos on the Illinois side of the Mississippi.

In Lake Charles, Pinnacle would control the two largest hotel-casinos in the market.

“We are pleased with the progress we have made in addressing the Federal Trade Commission’s administrative complaint and look forward to completing our proposed acquisition of Ameristar as soon as possible in the third quarter,” Pinnacle CEO Anthony Sanfilippo said in a statement.

Last week, Pinnacle said it secured almost $3 billion in financing needed to complete the buyout.

Wall Street immediately began speculating which companies might be interested in the Pinnacle properties and if they will be sold at discount prices.

“The required sale of both properties could limit the potential sales price of both assets,” Well Fargo Securities gaming analyst Cameron McKnight told investors.

In St. Louis, Pinnacle said its net revenues for the market for the 12 months that ended March 31 were $389.4 million. Lumiere Place contributed 49 percent of the revenues.

Lake Charles could be more of a sales challenge.

Pinnacle’s L’Auberge Lake Charles and the Ameristar development share land. Pinnacle once owned the project, which has had three different ownerships. A new owner could slice heavily into Pinnacle’s market share.

In a statement, Pinnacle said Ameristar invested $144.5 million into the Lake Charles project over the 12 months that ended March 31. Ameristar has previously disclosed that in the 2013 second quarter it expects capital spending of $84 million related to Lake Charles design and construction costs.

The project is 20 percent complete and requires another $400 million to finish.

“Potential buyers would need to negotiate with Louisiana gaming authorities in order to revise the scope and scale of the license,” RBC Capital Markets gaming analyst John Kempf told investors.

The other challenge, analysts said, is the potential that future Texas gaming legislation could have on the market.

Analysts speculated that Boyd Gaming Corp., Isle of Capri Casinos, Churchill Downs, Rock Gaming and others might have an interest in Lake Charles.

“The Lake Charles development will likely need to be sold to a viable, well-resourced and independent third party,” McKnight said. “This could limit the pool of eligible buyers.”

Pinnacle announced in December it would pay $26.50 for each share of Ameristar and assume $1.9 billion of debt. The company would grow to 17 gaming properties plus the Lake Charles project.

Pinnacle owns casinos in Louisiana, Missouri and Indiana and racetracks in Ohio and Texas. Ameristar has eight properties in Missouri, Iowa, Colorado, Mississippi, Indiana and two, Cactus Pete’s and the Horseshu in Jackpot on the Idaho state line.

In May, the FTC filed a 17-page administrative complaint blocking the buyout.

“As it stands, we believe the announcement will be viewed favorably by investors and hence we expect shares to respond well,” Deutsche Bank gaming analyst Carlo Santerelli told investors. “If nothing else, we believe the announcement removes whatever risk there was believed to be around the deal falling through.”

Shares of Pinnacle Entertainment gained 79 cents, or 4.19 percent, to close at $19.64 on Monday on the New York Stock Exchange. Shares of Ameristar gained 19 cents, or 0.73 percent, to close at $26.39 on the Nasdaq.