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Best of Howard Stutz

Gaming Guru

Howard Stutz

Talks Get Riv Revved Anew

27 March 2006

Two weeks after Riviera Holdings Corp. broke off negotiations with an investment group that had already spent $15 million to buy 1 million shares of the company's stock, acquisition talks resumed this week that could lead to the sale of the aging Riviera and its 26 acres of valuable Strip real estate.

Could the deal happen this time? Maybe.

But gaming analysts said investors are growing weary with the company leadership's song and dance.

In a filing with the Securities and Exchange Commission, Riviera Holdings, which also operates a casino in Black Hawk, Colo., said the possible acquisition price for the company was $17 a share.

"It almost seems like they are negotiating through the 8-K," said one industry observer.

In December, a group headed by former Starwood Hotels' Chairman Barry Sternlicht and Las Vegas real estate developer Brett Torino, bought shares in Riviera Holdings, paying $15 a share for a portion of the company's stock controlled by Riviera Chairman Bill Westerman and a Westerman family trust. At the time, Westerman owned almost 2.1 million of Riviera's 12.4 million outstanding shares.

However, in an 8-K filing with the SEC on March 8, Riviera Holdings said negotiations with the investment group to acquire additional shares had broken off.

Gaming analysts speculated that the talks resumed because another older Strip casino, the Tropicana, was removed from the shopping list a week ago when Pinnacle Entertainment agreed to a $2.1 billion purchase of Aztar Corp.

"Given the acquisition activity, it's obvious why the buyers would show up again," CRT Capital Group gaming analyst Steve Ruggiero said. "With Tropicana off the market, it leaves the Riviera as one of the best remaining properties available for purchase on the Las Vegas Strip."

Ruggiero has previously valued the Riviera's site at up to $15 million an acre. Last year, Harrah's Entertainment paid what was valued at $20 million an acre for the Imperial Palace.

"Negotiations always involve some lack of uncertainty regarding the eventual outcome, but we believe (the) announcement provides some measure of relief to investors frustrated by previous stalled efforts to sell the company," Morgan Joseph gaming analyst Adam Steinberg said in a note to investors.

"It is possible, but not probable, that other potential buyers could also make their own offer for Riviera," Steinberg also said.

Riviera Holdings filed its 8-K late Wednesday after the stock market closed. On Thursday, shares in Riviera jumped $1.42 in value on the American Stock Exchange on news of the renewed negotiations.

On Friday, shares in Riviera closed at $16.40, down 3 cents or 0.18 percent.

Also on Friday, Standard & Poor's Ratings Services placed its ratings on Riviera Holdings, including its 'B' corporate credit rating, on CreditWatch with developing implications.

In a statement, the rating service said it would monitor developments associated with a potential acquisition.

"There continues to be questions about Riviera's long-term operating strategy given its pursuit of strategic alternatives in 2005. While an acquisition of the company continues to remain uncertain and as the company may not provide ongoing guidance relative to its progress, Standard & Poor's may decide to resolve the CreditWatch listing at a later date if it appears a transaction is not likely to occur."

Riviera Holdings has been in flux for much of the past 18 months with much of the attention focused on the future of the 50-year-old Riviera, the company's 2,070-room flagship.

In October, Riviera management said it had completed a review of strategic alternatives for the Strip resort, but reached no conclusions. Company leaders had said they were looking at redeveloping the hotel-casino site but were also considering joint ventures, refinancing and mergers.

Gaming analysts speculated that Sternlicht's presence in the negotiating group could mean the buyers intend to take a larger stake in Riviera Holdings and eventually supplant the current management team.

Any significant purchase would bring about Sternlicht's re-entry into gaming. Sternlicht oversaw Starwood when it owned Caesars Palace and the now-closed Desert Inn.

Sternlicht left Starwood in 2005 and has the title of founder and chairman emeritus of Starwood. He operates Starwood Capital, a private real estate investment and equity firm headquartered in Greenwich, Conn., that manages more than $5 billion, a statement by the hotel company last spring said.

Westerman said last year the Riviera would benefit from the construction of seven condominium and time share projects with 4,000 rooms within walking distance of the Strip casino.

The company had booked the value of the Riviera site at $21 million, well less than $1 million an acre. He thought the site could fetch well more than $1 million an acre in a sale based on recent Strip land acquisitions.