LV firm in $71 million casino merger

John Wilen

Friday, Oct. 30, 1998 | 11:48 a.m.

Jackpot Enterprises Inc. will acquire CRC Holdings Inc., the Miami-based company operating as Carnival Resorts & Casinos, for 6.485 million shares of stock.

At Thursday's closing price of $11, the transaction would be worth about $71.335 million. The companies agreed to the acquisition in a non-binding letter of intent.

Jackpot, a Las Vegas-based company that operates 4,300 gaming machines on a slot route and owns two small casinos in Northern Nevada, will gain a bevy of CRC gaining gaming properties and commitments, including an agreement to develop a casino at Lake Las Vegas.

"It's creating more critical mass for the company," said Don Kornstein, Jackpot's president and chief executive officer.

CRC manages and owns 60 percent of Casino Rouge, a riverboat casino in Baton Rouge, La., and operates Casino Rama, a 200,000 square-foot casino north of Toronto for the Chippewas of Rama First Nations Indian tribe and the Ontario Casino Corp.

CRC has an agreement to develop a casino at Lake Las Vegas, and has been selected by a tribe to develop and operate a casino near Spokane, Wash.

"We are extremely pleased with this transaction and believe it brings together two very able management teams, with the financial strength to be able to selectively grow the merged company over the years," said Sherwood M. Weiser, CRC's chairman and chief financial officer.

A majority of CRC's shareholders have already approved the merger, and Weiser and Donald Lefton, the company's largest shareholders, have agreed to serve on Jackpot's board. Weiser is expected to serve as co-chairman of the merged company along with Allan Tessler, Jackpot's current chairman. CRC will appoint a third board member.

In addition to its slot route business, Jackpot owns small casinos in Battle Mountain and Jackpot, Nev. The company continues to try to sell those properties, said Kornstein. Jackpot employs 850.

By paying for CRC with stock, Jackpot will retain all of its cash and will incur no debt. The company was carrying $49.8 million in cash and no long term debt on Sept. 30, the end of its first quarter.

The cash gives Jackpot ample opportunity to do more deals down the road, said Kornstein.

"We're retaining all of our cash, so we're really retaining a lot of our gun-powder," said Kornstein. "We're positioning the company to grow."

CRC is a privately-held company, and Kornstein declined to reveal its financial details. However, he did say the acquisition would more than double Jackpot's cash flows -- earnings before interest, taxes, depreciation and amortization (EBITDA).

In the year that ended June 30, Jackpot generated $14.8 million in EBITDA, down from $16.6 million in 1997. In the quarter that ended Sept. 30, EBITDA declined to $2.8 million from $3.3 million in the year-ago quarter.

Jackpot's 1997 revenues were $93 million, up from $91.9 million in 1997. Profits were $7.2 million, or 79 cents per share, down from $7.8 million, or 84 cents per share in 1997. In the quarter that ended Sept. 30, revenues fell to $22.2 million from $22.7 million. Profits also fell, to $1.1 million, or 13 cents per share, from $1.6 million, or 17 cents per share.

Jackpot attributed the quarterly declines to the closing and discontinuance of operations at some non-chain retail locations. Casino operations, which generate a small percentage of Jackpot's business, also declined.

At Sept. June 30, Jackpot had 8.617 million outstanding shares. The shares issued to finance the acquisition will increase outstanding shares to 15.102 million. CRC shareholders will end up owning 43 percent of Jackpot.

The merger is contingent on the signing of a definitive merger agreement, regulatory approvals and Jackpot shareholder approvals. Jackpot said it expects to sign a definitive agreement by year's end. The company has postponed its annual shareholder meeting -- scheduled for Dec. 16 -- in favor of a special meeting to approve the merger. That special meeting will not be scheduled until after the final agreement is signed.

Regulatory approvals, including federal Securities and Exchange Commission approval, and the approvals of gaming regulators in Nevada, Louisiana and Ontario, could take several months longer, said Kornstein.

Over the past year, Jackpot's management has been embroiled in a dispute with two dissident shareholders over what they allege to be managements' improper rejection of favorable acquisition offers. Jackpot denies it has received any acquisition offers.

But the shareholders are trying to force the company to put a measure on its next proxy solicitation statement that, if passed, would force Jackpot management to disclose any acquisition offers they have received in recent years.

Last week, the SEC rejected a Jackpot attempt to keep the measure off its proxy.

One of the shareholders, Bob Nichols, was not impressed with the CRC acquisition agreement.

"We are going to look at this deal very carefully," said Nichols.

Other investors appeared happy. Jackpot stock moved up 13 cents to $11 on Thursday. The stock traded as low as $9.13 in early October, and as high as $13.98 in March.