Station buying Fiesta

David Strow

Thursday, July 20, 2000 | 11:23 a.m.

Station Casinos Inc. threw its future behind Las Vegas this morning, announcing plans to buy out the Fiesta hotel-casino and sell off its two properties in Missouri -- where it is entangled in a criminal investigation.

In its second buy-out of a prominent local competitor in as many months, Station said this morning it will pay $185 million to the Maloof family for the Fiesta hotel-casino, located directly across Lake Mead Boulevard from Texas Station in North Las Vegas. This deal is expected to close by next January, and comes just weeks after Station said it would buy the Santa Fe hotel-casino in northwest Las Vegas for $205 million.

"It wasn't a situation where we needed to sell," said George Maloof, president of the Fiesta. "I felt it was a fair sale. They're probably now the premier gaming company in the state of Nevada. I wanted to make sure if I did sell, I'd sell to a company that was good to their employees, and had a good reputation in the community."

But unlike the Santa Fe buyout, Station officials say there are no plans to convert the popular Fiesta to a Station-branded property.

"It's not that particular location, it's the brand," said Glenn Christenson, chief financial officer of Station. "We think this unlocks the value of $100 million in land we have at six gaming-entitled sites (in Las Vegas). Rather than developing Stations at all of these sites, we can develop Fiestas."

Simultaneously, Station announced plans to sell its properties in Kansas City and Missouri to a group led by John Finamore, head of its midwest operations, and William Warner, Station's vice president of finance. The sale price for the two properties is $475 million.

"Essentially what we've done is made $420 million in acquisitions in Las Vegas, and are paying for them by selling $475 million in assets in Missouri," Christenson said. "As a result of selling these assets, we have much more financial flexibility to accelerate other core business opportunities, such as master planned expansions at other properties, other acquisitions ... and buying back stock."

Station pointed to strength in its earnings as evidence of Las Vegas' attractiveness. This morning, the company announced earnings of 33 cents per share for the quarter ending June 30, up 65 percent from the year-ago period. Cash flow increased 16 percent to $71.3 million.

Though Station said the deal will strengthen its long-term prospects by focusing exclusively on the high-growth, high-return Las Vegas locals market, investors are apparently skittish. In mid-morning trading, Station was off $3.13 to $12.19, a drop of nearly 20 percent.

The deal continues to strengthen Station's lock on the Las Vegas market, where it will operate more properties than any other gaming company. Once the Fiesta and Santa Fe deals close, Station will own and operate six Las Vegas properties. The company has plans to build two more, in Green Valley and on Craig Road in North Las Vegas.

As it did with the merger of MGM Grand Inc. and Mirage Resorts Inc., the control board will probably examine the Fiesta acquisition for antitrust concerns, Gaming Control Board Chairman Steve DuCharme said.

"They're probably rapidly approaching the area where that will be reviewed," DuCharme said. "There will be some time spent on (antitrust) analysis. But it's not jumping off the page at us, that we need to throw the breaks on this thing."

DuCharme noted that several major competitors still remain in the locals market, such as Coast Resorts, Boyd Gaming and Carl Icahn's Arizona Charlie's properties.

But Anthony Curtis, publisher of the Las Vegas Advisor newsletter, lamented the end of an independent Fiesta.

"Going on past evidence, they (Station) are good for the gambler in general, but not as good as the place they're taking (Fiesta)," Curtis said. "It's a diminished opportunity for the player, especially in video poker. I always felt that Fiesta was perhaps the loosest of them all at the slots.

"From the point of view of the local customer, I think this is bad news. When I heard this, I just cringed."

Christenson, however, insisted there weren't any plans to change the loose-slot formula that has been key to the Fiesta's marketing strategy.

"We think we have very loose slots already, and people vote with their feet every day," Christenson said. "We'll be able to take that (the Fiesta) brand to other parts of the valley."

Though the Maloofs will be leaving North Las Vegas, they won't be gone for long -- in August, the family plans to break ground on a $250 million casino development near the Rio on Flamingo Road. The theme of this property has yet to be announced.

"If this allows them to throw all their might and style into the new place on Flamingo, I think you'll see the same Maloof imprint here," Curtis said. "That could be good news."

The sale announcement came as investigations of Station's ties to a former gaming attorney move forward in Missouri. In June, the Missouri Gaming Commission announced plans to move forward on a "public fact-finding hearing" into $500,000 in bonus payments Station made to former outside attorney Michael Lazaroff.

Those hearings are still slated for Aug. 30 in Kansas City; and, for the first time, Station said today it has become involved in a criminal investigation. This morning, Station announced that Chairman and Chief Executive Frank Fertitta and Christenson have been subpoenaed to testify before a federal grand jury in Kansas City on the Lazaroff matter. No testimony date has been set, and Station did not elaborate on the focus of the grand jury's investigation.

Hearings will also proceed at the Missouri Gaming Commission, regardless of the sale, said commission spokesman Harold Bailey.

"They're not out of the market yet," Bailey said. "Until they are, there's no need to change our plan.

"The purpose of the hearing would be to find out the purpose of that $500,000 payment. Whether they're in or out of the market, the commission would still like to know what that payment is for."

Station said it formed a special committee earlier this month to monitor the Missouri investigations. DuCharme said it's a situation being watched in Nevada.

"Obviously, we monitor a Nevada licensee's conduct wherever they do business," DuCharme said. "We have been in contact with Missouri gaming regulators. We'll review that material at the appropriate time."

When asked if the Lazaroff matter spurred the Missouri sale, Christenson said, "Absolutely not."

"We've been exploring our strategic alternatives there for some time now," Christenson said. "If you look where we've been allocating capital for the past three years, it's all been in Las Vegas. This is just the culmination of a business strategy we've been contemplating for some time now."