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$95 Million Takeover Bid Made for Jackpot Enterprises

11 October 1999

by David Strow

Las Vegas Entertainment Network Inc. launched an unsolicited $95 million takeover bid Oct. 8 for Jackpot Enterprises Inc. of Las Vegas.

LVEN is offering $11 per share in cash, a 27.5 percent premium over Jackpot's price immediately before the announcement. However, LVEN said the tender offer will not be in effect until the company has received approval from the Nevada Gaming Control Board and the Nevada Gaming Commission.

In its tender offer statement, LVEN said it has had no contact with Jackpot or any of its executives prior to announcing the bid.

"We were just notified this morning of the filing of the tender offer, and we are in the process of reviewing the filing," said Jackpot Chief Executive Don Kornstein. He declined further comment.

Last month, Jackpot said it had hired an investment banker to evaluate strategic alternatives for the company in the wake of two failed acquisitions. Kornstein later said that the sale of Jackpot was an option the company was examining.

LVEN spokesman Jay Goldberg said the company is pursuing Jackpot because of its strategic fit with slot operations that LVEN acquired in Brazil recently. The Los Angeles-based LVEN now operates 1,200 machines in Brazil, Goldberg said, and intends to expand to more than 50,000 machines.

"(Jackpot) is valuable to us," Goldberg said. "We will be able to use Jackpot's back office, which is huge, to plug in and operate the whole operation."

Goldberg said LVEN received $190 million in cash last month, made available through an investment agreement signed Sept. 29. LVEN identified the investors as Fred and Kari Cruz of Las Vegas, but revealed no further information on them. Fred Cruz is listed as owner of an entity called "Countryland Wellness Internet Network Trust" in LVEN's filing Oct. 8.

The agreement gave the Cruzes 12.2 million shares of LVEN stock at $15.80 per share.

Goldberg said LVEN has also closed a previously announced $305 million investment agreement, giving the company nearly $500 million in cash.

Balance sheets filed Oct. 8 by LVEN, however, do not reflect either investment. The balance sheet filed was through July 31, and reflected a cash balance of $177,000.

In the fiscal year ending June 30, Jackpot reported net income of $4.6 million on revenues of $95.7 million. It operates more than 3,900 slot machines scattered throughout Nevada.

As of June 30, Jackpot had working capital of $53 million. On Aug. 19, it boosted those capital reserves with a $13.5 million fee paid by Players International of Atlantic City, compensation for the termination of Players' merger deal with Jackpot.

Jackpot's considerable cash reserves make it a particularly attractive target for LVEN, Goldberg said, and reduce the effective cost of the acquisition to less than $20 million for the company.

By comparison, LVEN reported no revenues through the nine-month period ending July 31. Over that period, it recorded a net loss of $5.28 million.

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