Station to buy Reserve

David Strow

Wednesday, Oct. 18, 2000 | 11:17 a.m.

Station Casinos Inc. took another step toward dominance of Las Vegas' locals casino market today, announcing a deal to buy the Reserve hotel-casino in Henderson for $70 million.

But the deal will result in a substantial expansion of Reserve owner Ameristar Casinos Inc. as well: In a related deal, Ameristar announced it would buy Station's two Missouri riverboat casinos for $475 million.

"For Station, it fills in the last piece of the puzzle needed for domination of the locals market," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. "(For Ameristar), it takes them from being a small gaming company to the midmarket gaming field, and eliminates that wallowing property (the Reserve).

"For Station, it gets them out of where they don't want to be."

Deutsche Banc advised Ameristar on the transaction, and has arranged financing commitments to complete the deal. Ameristar has also arranged for $100 million in financing to complete the expansion of Station's property near St. Louis.

If completed, the Reserve could become Station's eighth or ninth property in the Las Vegas Valley, and the third acquisition announced by Station this year. Station has already closed on its purchase of the Santa Fe and plans to close on its buyout of the Fiesta in January. One property is still in planning stages.

Station has its Palace, Boulder, Sunset and Texas properties in the Las Vegas area and is building a resort with the Greenspun family's American Nevada Corp., sister company of the Las Vegas Sun, a few miles west of the Reserve at Green Valley Parkway and Interstate 215.

Station is also proposing a North Las Vegas casino on Craig Road, but has not started construction.

Station had planned to sell the Missouri properties to a team of its Midwest managers for $475 million, but announced earlier this month that it would begin considering outside offers. At that time, Station amended its agreement with the management team that would allow the agreement to be called off if certain "key hurdles" weren't met by year's end. Station officials declined to comment on what key hurdles weren't met.

Four members of that management team -- John Finamore, president of Station's Midwest operations; Thomas Burke, general manager of Station Kansas City; Anthony Raymon, general manager of the St. Louis riverboat; and Troy Stremming, Midwest general counsel, will join Ameristar after the close of the deal.

Ameristar said it believes the acquisition of the Missouri casinos could be complete by year's end. The sale of the Reserve would follow early next year.

Though Station had a number of other offers for the Missouri properties, Ameristar's offer to throw in the Reserve put it over the top, Station Chief Financial Officer Glenn Christenson said. The $70 million price was particularly attractive, Christenson said, below the property's current replacement value. Christenson said Ameristar first proposed a swap Sunday afternoon.

"We've been interested in that property (the Reserve) for some time," Christenson said. "We've said for some time that our goal is to continue to expand our presence in the Las Vegas locals market. This was a very natural opportunity to take advantage of when it came about with respect to the Missouri transaction.

"Through the acquisition of the Santa Fe, Fiesta and Reserve, we will have redeployed virtually all of those assets (in Missouri) into the Las Vegas locals market."

Christenson said it was premature to say what changes Station would make at the Reserve, other than saying that there would be opportunities for economies of scale.

"We have a lot of options on the table we're evaluating right now," Christenson said. "There's room for improvement there, and we'll attempt to improve those margins at the property. We'll integrate it into our family, whether it's (a) Station, (a) Fiesta or the Reserve."

Station's concentration in Las Vegas will apparently prompt the state Gaming Control Board to take a closer look at the Reserve acquisition.

"I wouldn't say it's something we'd put the brakes on, but it's something we need to do a little more in-depth analysis on than we have with the past two acquisitions (by Station)," Gaming Board member Dennis Neilander said. "Until we do that, we're not going to be too concerned.

"(Market concentration) is something that's discretionary. There's no formula that says, 'This is too much concentration.' But I think we're going to have to do more analysis on that (the locals) market than we have in the past."

Sources have told the Sun that Station had received inquiries about the Missouri properties from at least four other companies, including Boyd Gaming Corp., Coast Resorts Inc., Argosy Gaming Co. and Penn National Gaming Inc.

Ameristar, Boyd and Argosy had appeared to be the most serious contenders, the sources said previously.

Ameristar will acquire something it has craved for some time -- a sizable presence in the Missouri market. Ameristar had competed for the right to build a new casino near St. Louis, but lost out recently to Isle of Capri Casinos Inc. Ameristar had spent nearly $2.5 million on that effort.

Though Ameristar didn't succeed in that effort, the company still has an application before the Missouri Gaming Commission. That will allow the company to move forward much more quickly in the Missouri licensing process.

That was paramount to Station, as the Missouri Gaming Commission is currently attempting to revoke the licenses of the two properties in retaliation for Station officials' refusal to testify before the commission on the activities of former Station outside attorney Michael Lazaroff. Although Station officials later estified, the commission is still moving forward on the revocation. Station is appealing that order.

Instead of building one new casino, Ameristar will acquire Missouri's two biggest properties in one shot. Combined, the two Missouri properties recorded more than $400 million in gaming revenues in the last fiscal year, according to the Missouri Gaming Commission. Zarnett projects the deals will push Ameristar's cash flow from $65 million last year to about $150 million.

Just as importantly, Ameristar will rid itself of a property that has lost money since its 1998 opening, and has proven a drag on company earnings. One of the biggest factors working against the Reserve was heavy competition from Station's nearby Sunset Station.

"There's no doubt the Reserve was wallowing, and they've traded it for better opportunities," Zarnett said.

Once complete, Ameristar's only Nevada properties will be two small casinos in Jackpot in Northern Nevada. The company also owns casinos in Vicksburg, Miss., and Council Bluffs, Iowa.

"The Missouri acquisitions provide Ameristar with the ideal opportunity to further leverage the company's expertise in riverboat operations," said Ameristar Chief Executive Craig Neilsen in a statement. "An additional benefit gained from the transaction will be the ability to cross-market the combined four Midwest properties under the Ameristar brand at higher levels of efficiency."

In the battle for the Missouri properties, the biggest gaming companies of all -- Park Place Entertainment Corp., Harrah's Entertainment Inc., MGM MIRAGE and Mandalay Resort Group -- never emerged as bidders, despite speculation that they would. Ultimately, one analyst said, that isn't surprising.

"MGM isn't interested ... right now, they're focused on their own thing," said Bear Stearns gaming analyst Jason Ader. "Mandalay hasn't really been an aggressive acquirer at all ... that would be a meaningful shift in their business strategy.

"I think ultimately, this is going to end up being a relief to Station's management team and the company. But an acquirer has their work cut out for them. (Missouri) does have its challenges."