Station preferred stock move praised by analyst

John Wilen

Monday, May 17, 1999 | 2:36 a.m.

Station Casinos Inc. said it will call all 2.07 million of its $3.50 convertible preferred stock for redemption on June 14, and an analyst reacted by boosting his earnings estimates for the company.

The preferred shares will be convertible into common stock at the rate of 3.242 shares of common stock per share of convertible preferred stock. Preferred stockholders also have the option of converting their shares before June 11 at the higher rate of 3.257 shares of common stock per share of preferred stock.

Station common stock was priced at $17.69 in mid-day trading today. Preferred stock was trading at $57.63. At the lower conversion rate of 3.242 shares of common stock, preferred shareholders will be exchanging each $57.63 share for $57.35 in common stock, at today's prices. Preferred shares redeemed before June 11 will garner $57.61 in Station common stock per $57.63 preferred share.

Fractional shares will be paid in cash in an amount equal to the closing common stock price on the day prior to conversion.

As of May 7, there were 35.3 million shares of Station common stock outstanding, and 2.07 million shares of preferred stock outstanding. Depending on how many preferred shareholders redeem their shares before June 11, Station will issue between 6.71 million and 6.74 million new shares of common stock to cover the conversion.

Station spokesman Jack Taylor said the redemption is a simple way for the company to use its common stock -- which is performing well -- to reduce costs associated with its preferred stock. Preferred stock is usually seen as a debt instrument rather than equity.

The move prompted BancBoston Robertson Stephens analyst Harry C. Curtis to raise his Station earnings estimates by 6 cents per share in fiscal 1999, and by 5 cents per share in fiscal 2000. In 1999, the company will earn 76 cents per share, as opposed to his earlier target of 70 cents per share, said Curtis. And in 2000, Station will earn 95 cents per share, compared to his earlier estimate of 90 cents per share, said Curtis.

"The redemption will eliminate the $7 million annual dividend and allow the company to pay down debt at a faster rate, which should further reduce interest costs," said Curtis.

Eliminating the preferred stock dividend is accretive to earnings per share at a rate of about 2 to 3 cents per share, and lower interest expenses will add another 2 to 3 cents per Station share, said Curtis.