Analysts speculate on possible acquisition of Station Casinos

David Strow

Friday, Dec. 15, 2000 | 11:05 a.m.

Could Station Casinos Inc. be next in the parade of gaming acquisitions?

A major gaming analyst believes that's a possibility.

In a report issued Tuesday, Bear Stearns gaming analyst Jason Ader wrote that Station is "an attractive acquisition target now that it is purely focused on the Las Vegas locals market."

Other gaming analysts concur that, on paper, Station looks like an attractive target -- but they're not convinced the Fertitta family, owner of more than 40 percent of Station's stock, would be willing to deal.

Ader said the attractiveness of Station as a buyout target isn't new. But with a deal pending to sell its two Missouri casinos to Ameristar Casinos Inc., Station will be out of a state that has caused it regulatory headaches in the past.

"I don't think anyone would have wanted to acquire Station with all that nonsense in Missouri going on," Ader said. "It would be a cleaner acquisition going forward. Acquirors don't like to buy companies where assets are encumbered with controversy, and that's certainly the case with the Missouri properties."

Once Station closes on a series of pending acquisitions, it will own seven big Las Vegas properties -- Boulder, Texas, Sunset, Palace, Santa Fe, Fiesta and the Reserve -- and owns or has interests in a few smaller operations.

It's building a resort in Green Valley with the Greenspun family -- owner of the Las Vegas Sun -- and Station plans another casino on Craig Road in North Las Vegas.

Station's closest competitor in the locals market, Coast Resorts Inc., operates four Las Vegas properties.

Ader said identifying a potential buyer would be pure speculation, though he noted that Park Place Entertainment Corp. and Harrah's Entertainment Inc. have been aggressive acquirors in recent years.

"Certainly Station's assets would fit their portfolios, but neither has expressed any interest, so that would be just speculation," Ader said. "Station's assets are undervalued, and anyone that knows gaming recognizes that."

Still, Ader said he doesn't think a buyout will happen in the near term.

"Over the next five years, I wouldn't be surprised, but in the next 12 months would be a little soon," Ader said. "An imminent buyout of Station would surprise us. If the stock price weakens considerably, a strategic buyer would recognize it as an opportunity, as MGM (Grand) did with Mirage (Resorts)."

Station's stock price has been strengthening since the company first announced plans to sell its Missouri casinos to Ameristar on Oct. 18. Station closed Oct. 17 at $14.88; on Nov. 29, the day it settled complaints with the Missouri Gaming Commission, it closed at $18.63. It closed Thursday at $17.

Station's rally has actually prompted two analysts -- Robin Farley of UBS Warburg and Dennis Forst of McDonald Investments -- to downgrade Station in recent days. Forst downgraded Station from "aggressive buy" to "hold" on Dec. 8; Farley downgraded Station from "strong buy" to "buy" Thursday.

"The stock just moved close to its price target, and with the slowing economy, etc., I think there's a lot more risk in all of these (gaming) stocks than there was six months ago," Forst said. "It's been the best performer in gaming, and we just wanted to take some of the chips off the table."

Farley concurred in her report, saying the "near-term catalyst" for Station's stock has passed with the Missouri controversy coming to an end.

"The fundamentals of the Station story have not cracked; rather, this is a case of having little growth in the near term in exchange for higher-return growth (in 2002)," Farley wrote.

Farley agreed that Station remains an attractive takeover target, but isn't convinced a sale could be negotiated with the Fertittas.

"Station remains a great takeover target, in terms of what they have to offer, which is a dominant presence in a large market," Farley said. "The issue remains that the Fertitta family really isn't viewed as a seller of companies, and to get a transaction to occur, you need a seller, not just a buyer."

"With the niche they're in, and the group of properties, they're an excellent fit with any of the four major (gaming companies)," Forst said. "But I don't think there's a high level of probability it will happen. I don't think (the Fertittas) would turn down an exceptionally attractive deal, but I don't think they're shopping the company either."

The Fertittas have shown in the past they aren't opposed to selling the company. In January 1998 they agreed to have Station acquired for $1.7 billion by Crescent Real Estate Equities Inc. of Fort Worth, Texas, though that deal later fell apart.

Ader believes the Fertittas could be convinced to sell again, if the price reflected the long-term potential of Station's stock.

"It has to be a price attractive to Frank Fertitta (III, chairman and chief executive of Station) and his family," Ader said. "I don't think it's anywhere near $17 or $18 ... it's probably somewhere close to twice that."

Station officials could not be reached for comment on whether the company is interested in entertaining buyout offers -- or on another possibility, which is that the company could be a buyer rather than being acquired.