Jackpot revises terms of Carnival merger

John Wilen

Thursday, Feb. 18, 1999 | 11:49 a.m.

Jackpot Enterprises Inc. of Las Vegas said today it signed a definitive agreement to acquire CRC Holdings Inc., the Miami-based company that operates as Carnival Resorts & Casinos.

But the terms of the deal have changed since it was first announced last October, largely because Jackpot has negotiated the divestiture of CRC's non-gaming assets. The overall amount Jackpot will pay for CRC has fallen from $71.3 million to about $56 million.

According to its announcement today, Jackpot will pay CRC shareholders 3.5 million Jackpot shares and $25.8 million in notes. At Jackpot's mid-day trading price today of $8.63, the deal would be worth about $56 million.

Last October, Jackpot announced it would buy CRC for 6.485 million shares of Jackpot stock. At that time, Jackpot was trading at about $11, so the deal would have been worth $71.3 million. But at today's share price, a deal under those terms would have also been worth about $56 million.

A big difference between the deal as announced in October and the revised deal announced Thursday is that under the new deal, CRC shareholders will own a far smaller percentage of Jackpot stock. Under the terms announced in October, CRC would have ended up with about 43 percent of Jackpot. Under the new deal, CRC shareholders will own only 29 percent of the company.

Also under the earlier deal, CRC was to appoint three directors to the new seven-director Jackpot board. Under the new deal, CRC will only appoint two directors, CRC co-founders Sherwood Weiser and Donald Lefton.

Don Kornstein, Jackpot's president and chief executive, said CRC will spin off certain minority interests in hotels and shopping centers into a separate company at the same time the Jackpot deal is finalized. That will leave Jackpot with CRC's gaming assets, he said.

Negotiating the assets to be spun off was "really the reason for the delay" in signing a definitive agreement, said Kornstein.

In October a dissident Jackpot shareholder, Bob Nichols of Los Angeles, said he would vote against the merger largely because it appeared control of the company would shift to CRC. It was unclear whether the revised terms will change Nichols' mind. Nichols could not immediately be reached for comment.

Ken Pavia, another dissident shareholder who has questioned whether the merger makes sense for shareholders, said he still cannot assess privately-owned CRC's worth.

"We really don't have enough information," said Pavia.

Jackpot operates about 4,200 slot machines in Nevada on a slot route, and owns two small casinos in northern Nevada it is trying to sell. CRC owns part of a riverboat casino in Louisiana, operates an Indian casino near Toronto, is developing an Indian casino near Spokane, Wash., and has an agreement to develop a casino resort at Lake Las Vegas.

Earlier this month, Jackpot said it would acquire Players International Inc., an Atlantic City-based riverboat casino operator, for $424 million in cash, stock and debt. Players owns five riverboat casinos in the south and midwest.

Adding the 5.2 million shares Jackpot will issue Players shareholders to the mix will further dilute the ownership of CRC's shareholders to 20 percent of the three combined companies. Players shareholders will own 30 percent of the new company's 17.3 million outstanding shares.

Both deals must be approved by shareholders. Jackpot has yet to schedule shareholders meetings, and has yet to hold its 1998 annual meeting of shareholders.

In statements, Kornstein said both deals will be accretive to shareholders while allowing Jackpot to transform itself into a "well-capitalized and geographically diversified gaming company."

"Jackpot's operational and financial strengths, as well as its access to additional capital, will allow the company to pursue additional value-enhancing consolidation opportunities," said Kornstein in a statement. "The integration of three companies into one streamlined corporate organization should enable Jackpot to realize significant synergies and operational efficiencies that will enhance future cash flow and earnings per share. Pro forma for the Players and CRC acquisitions, Jackpot would have revenues and (cash flows) for the twelve months ended Dec. 31, 1998 exceeding $500 million and $100 million, respectively."

In Jackpot's last fiscal year, which ended June 30, 1998, the company reported revenues of $93 million and cash flows of $14.8 million. In Players last fiscal year, which ended March 31, 1998, the company reported revenues of $323.2 million and cash flows of $55.2 million. CRC's sales in the year that ended Dec. 31 were in the upper $70 million range, and its cash flows were in the low $20 million range.