CasinoCityTimes.com

Gurus
News
Newsletter
Author Home Author Archives Search Articles Subscribe
Stay informed with the
NEW Casino City Times newsletter!
Newsletter Signup
Stay informed with the
NEW Casino City Times newsletter!
Recent Articles
Rod Smith
 

New Gaming Giant: Boyd, Coast Set Up Merger

9 February 2004

Boyd Gaming Corp. and Coast Casinos are expected to announce today a $1.3 billion merger that will create the largest locals casino company in Nevada and one of the most diversified gaming firms nationwide.

Under the terms of the merger agreement, reached late Friday and unanimously approved by the boards of each company over the weekend, Coast will become a wholly-owned subsidiary of Boyd Gaming, sources close to the deal said Sunday. The Coast subsidiary will continue to be headed by Michael Gaughan, who now owns the company, sources said.

Together, the emerging company, which will retain the Boyd Gaming name, will have revenues of about $2 billion and will operate 17 properties with 9,050 rooms nationwide. In Las Vegas, it will operate 11 hotel-casinos with a total of 5,300 rooms.

In addition, Coast has a 461-room expansion under way at The Orleans and is about to break ground on its $350 million Southcoast, which will have 700 rooms in the developing residential area south of Las Vegas on Interstate 15.

By comparison, Station Casinos, which has been locked in a stiff competition with Coast Casinos for the Las Vegas locals market, has revenues of about $1 billion and operates 11 hotel-casinos with a total of almost 3,000 rooms.

Boyd Gaming has 7,600 employees in Southern Nevada and 18,000 nationwide, which will be combined with Coast's 7,500 employees, all of whom work in Las Vegas.

The sources said Coast shareholders will receive about $495 million in cash for the deal plus an estimated $325 million in new Boyd shares. In addition, Boyd will assume about $460 million of Coast debt, sources said.

The combined company is expected to get about half of its earnings from Las Vegas operations and half from operations in the East Coast and Gulf Coast regions.

The combined operation also is expected to include Harrah's Shreveport, which Boyd is in the process of buying.

Boyd's Sam's Town property, a longtime Las Vegas locals landmark on the east side of Las Vegas, will join Coast's three successful local properties -- Gold Coast, Suncoast and The Orleans, all on the west side of town -- to create a significantly larger presence in the rapidly expanding Las Vegas locals market outside of downtown and the Strip.

Sources close to the deal said the merger, first discussed 18 months ago in conversations between Boyd Chairman Bill Boyd and Gaughn, makes strategic sense because it combines east-side operations and west-side operations, which do not compete with one another.

Rumors have circulated since last year that Gaughn's Coast Casinos was up for grabs. Reports surfaced last year that Gaughn was in discussions with Station Casinos, which has been the dominant locals casino company, and Harrah's Entertainment, which was looking to increase its local presence.

Sources also said the deal being announced today makes sense for Boyd because it will increase its concentration on Nevada properties at a time when management said the state's regulatory and tax environment offers advantages over that of other jurisdictions.

The combined company also will include two properties on the Strip, Coast's Barbary Coast and Boyd's Stardust, plus Boyd's three downtown operations: the California, the Fremont and Main Street Station.

Boyd Gaming is also a significant operator in four states in the Midwest and South and operates Borgata, a new destination resort in Atlantic City that it owns with MGM Mirage.

Boyd Gaming recently announced the acquisition of Harrah's hotel-casino in Shreveport, La., for $190 million and expects to close the deal in the second quarter of 2004. The company said recently that it has started the planning process for an expansion of Borgata.

The merger addresses recent concerns on Wall Street that Boyd needs to expand through a strategy involving more than the acquisition of single operations and that it needs to establish itself as more than a second-tier player in its key markets.

Sources close to the deal said the merger brings into focus a clear growth strategy and creates one of the most diversified gaming companies in the industry.

It also combines the operations of two families that have been pioneers in the Las Vegas gaming industry. Boyd and Gaughn worked with one another on a variety of projects for more than 35 years when their fathers were partners in the casino business.

No management changes are planned at either of the two companies after the merger, which requires regulatory approvals and is expected to close this summer. Boyd Gaming's board of directors will be expanded from 11 to 13 directors and Coast Casinos will have the right to designate three directors, including Gaughan.

Sources close to the deal said the purchase price represents about 7.4 times Coast's estimated 2004 cash flow, a key measure of profitability. Cash flow generally is defined as earnings before interest taxes, depreciation and amortization.

Spokesmen for the two companies could not be reached Sunday for comment.

Deutsche Bank acted as financial adviser to Boyd Gaming, and Cravath, Swaine & Moore acted as legal adviser. Banc of America Securities acted as financial adviser to Coast Casinos, and Gibson Dunn & Crutcher acted as legal adviser.