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Gaming Guru

Howard Stutz

Pinnacle Gets $78 Million Consolation Prize

23 May 2006

LAS VEGAS, Nevada -- Pinnacle Entertainment ended Friday with an extra $78 million in the bank but without ownership of Aztar Corp.

Gaming analysts and Wall Street investors weren't upset at the outcome of the two-month Aztar bidding war, won by Columbia Sussex Corp.

The $78 million breakup fee paid to Pinnacle by Aztar -- $25.8 million will go to the lawyers -- is worth $1 a share in earnings to the Las Vegas-based casino company, according to one gaming analyst.

"We view this as a very positive outcome for Pinnacle and laud the company for not matching Columbia Sussex's $54 per share bid, which we view as too steep a price to pay for Aztar's assets," CRT Capital Group gaming analyst Steve Ruggiero said.

Pinnacle, which operates casinos in Reno, Louisiana, Indiana and Argentina, had sought to increase its scope nationally by acquiring Aztar, which operates the Tropicana casinos in Las Vegas and Atlantic City and three smaller casinos in Laughlin, Indiana and Missouri.

Now, Pinnacle may cast its eyes elsewhere on the Strip.

Pinnacle Chairman Dan Lee was traveling Friday and couldn't be reached for comment. However, he recently toured the Sahara, which has retained commercial real estate company CB Richard Ellis to sell the casinos and its three land parcels totaling 55 acres.

"Pinnacle has identified Las Vegas as a market it would like to enter. We believe the company will set its sights on other locations in Las Vegas," Morgan Joseph gaming analyst Adam Steinberg said in a note to investors, titled, "You Got to Know When to Fold 'Em."

Steinberg also said Riviera Holdings, owners of the Riviera and a Colorado casino, could become a target. Riviera has an agreement to be purchased by an investment group for $17 a share.

"We would not discount the company at least giving a cursory glance at Riviera Holdings," Steinberg said.

Pinnacle shares jumped $2.13, or 7.44 percent, Friday to close at $30.75 on the New York Stock Exchange.

Analysts said the company may need to repair its image with investors.

"As the bidding process continued, the financial discipline for which Pinnacle management was lauded, has lost some of its sheen, but we believe it can be restored," Steinberg said.

Added Davenport & Co. gaming analyst George Smith, also in a note to investors; "We are relieved the company has chosen not to make another bid. Concern pertaining to this saga has been a material overhang on the stock. Although buying Aztar would make strategic sense, we simply believe the price has gotten to rich. Moreover, management's decision not to up the ante demonstrates financial discipline."