Station stock plummets as merger is jeopardized

Brian Seals

Friday, July 31, 1998 | 11:16 a.m.

The $1.5 billion merger between Stations Casinos Inc. and Texas-based Crescent Real Estate Equities Co. may be unraveling.

Late Thursday, Station filed suits in federal and state courts here seeking declaratory rulings that it hasn't violated terms of the merger agreement and that Crescent can't back out of it.

If the deal falls through, it could cost Station more than a drop in its stock price. The original merger agreement calls for Station to pay Crescent a $54 million break-up fee if the acquisition fails.

Investors apparently believe the merger, which initially called for Crescent to pay $18 a share for Station common stock, won't be consummated.

Order imbalances delayed the start of trading in Station common and preferred shares this morning, but they ultimately opened sharply lower. Station common opened at 9 3/4, off 2 1/2, while the preferred first traded at 44, off 4.

Publicly, the dispute between Station and Crescent centers on the price to be paid to holders of Station preferred stock if the merger proceeds. Privately, though, some gaming analysts speculate Crescent wants out of the deal because of the widespread perception it offered too much for Station.

The original terms called for Crescent to swap its common stock for Station shares at a ratio equal to $18 per Station share, or about 58 percent over the trading price of Station common when the deal was announced last January.

Crescent stock has fallen sharply since then, but rebounded today on news of the lawsuits and speculation the acquisition won't close. It rose 1 3/4 to 31 3/8 in mid-morning trading; the stock was as high as 38 six months ago.

Station's lawsuits ask the courts to declare it didn't violate terms of the merger agreement by postponing a shareholders meeting scheduled for Aug. 4.

Station said earlier this week it had postponed the meeting -- with Crescent's consent -- because it needed more time to convince owners of its preferred stock they were receiving a fair price for their holdings.

However, Crescent Chief Executive Gerald Haddock said he hadn't consented to the delay. According to the lawsuits, Crescent demanded that Station re-schedule the meeting or it would be in breach of the agreement.

"Our position all along has been that Station should hold a shareholder meeting as soon as practical after the agreement was signed," said Haddock.

Holders of Station's convertible preferred stock want a conversion ratio comparable to that common stockholders would receive under the deal, but have been offered a smaller premium and a lower dividend ratio on Crescent preferred.

They could convert their Station preferred, which yields 7 percent, to Station common shares and get the higher dividend if the deal goes through. But if it fails, they'll be left with Station common that doesn't pay a dividend.

Station attorney Steve Morris said the lawsuits were filed "to clarify language" of the merger agreement.

"I have no reason to believe the deal is going down," Morris said Thursday evening.

Station also said it's calling on Crescent to buy $20 million of its preferred shares. Crescent agreed to buy the shares as part of the purchase, Station said.

The Sun's Gary Thompson and Bloomberg News contributed to this report