Mandalay, Park Place said to be looking at riverboat

David Strow

Tuesday, March 6, 2001 | 11:04 a.m.

After two years of torrid acquisition activity, attractive deals are becoming scarce in the gaming industry.

That means the Empress Casino, a riverboat in the Chicago suburb of Joliet, Ill., is particularly attractive these days. In a settlement with the the Illinois Gaming Board, owner Horseshoe Gaming Inc. agreed to sell the boat by the end of May -- and it's expected there won't be a lack of bidders for the property.

"It's one of the premier riverboats in America, so there will be a lot of interested parties," said Jason Ader, gaming analyst with Bear Stearns.

At the top of the list of expected bidders are two Las Vegas giants: Mandalay Resort Group and Park Place Entertainment Corp. These companies, together with Argosy Gaming Co. of Alton, Ill., are expected to emerge as the chief bidders for the property.

"I would say any of those three will be the contenders," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. "If you have the resources, and you come across the right asset, it makes sense to carefully consider it.

"For Mandalay, it would give them some geographic exposure in the Chicago area, and greater geographic diversity, which they don't have enough of. For Argosy, it would be their bread and butter (the riverboat gaming business). And Park Place has historically been very good at acquisitions, and they have the resources."

David Anders, gaming analyst with Merrill Lynch, agreed that the three companies should be considered the top contenders.

"It's historically one of the top producing boats in Illinois," Anders said. "Any vessel servicing Illinois is attractive ... the real question is, how much would it cost to bring it up to the standards of the companies we're talking about?"

Both Mandalay and Park Place officials declined comment on the possibility they would bid on the property. Mandalay operates a riverboat casino in the Chicago suburb of Elgin, Ill., located 40 miles northwest of Joliet, and is a part owner of a dockside casino in Tunica, Miss. Park Place owns five dockside properties in Mississippi, one Indiana riverboat near Louisville, Ky., and one near New Orleans -- but has no Chicago-area presence.

Horseshoe and its primary stockholder, Jack Binion, agreed to sell the boat in a January settlement with the Illinois Gaming Board. The board declared Binion unsuitable to hold a gaming license in Illinois last summer, citing what it saw as questionable business practices and compliance issues involving Binion in Nevada, Louisiana and the Joliet casino. Binion had been appealing this decision when he agreed to the January settlement, which gave him 120 days to sell the Joliet property.

Binion is the son of legendary Las Vegas casino boss Benny Binion, and managed downtown Las Vegas' Binion's Horseshoe for 34 years. Binion sold all but 1 percent of the Las Vegas casino to his sister Becky Behnen in 1998, following a bitter legal battle for control of the property.

The Joliet property, acquired by Horseshoe in 1999, recorded $72 million of cash flow in 2000, making it one of the top performing riverboats in the country. Historically, Zarnett said, riverboats sell for more than 6.5 times annual cash flow, which would put the expected sale price at more than $468 million. One source indicated Binion was asking $500 million.

"The question is, how do you run it better than Jack Binion?" Zarnett said. "That deserves fair consideration. But he really hasn't had the opportunity to do his thing with it. Someone who buys it and looks at it in terms of improvements will be very happy with the purchase."

Still other companies could emerge as bidders on the property. Both Ader and Anders believe MGM MIRAGE could also make a run at the Joliet casino.

"(Chicago) is a great market, and clearly there's a lot of MGM customers from Chicago," Ader said. "MGM is a company that needs to find growth opportunities in 2002 and 2003, because there's not a lot happening for them until Atlantic City (the new $1 billion Borgata hotel-casino) opens (in 2003). This provides growth, and helps the Las Vegas business as a feeder for potential new customers.

"They're open to riverboat ideas if they make sense."

Ader also mentioned Pinnacle Gaming, Colony Capital and Carl Icahn as possible suitors. Icahn also has a substantial Las Vegas presence, with two Arizona Charlie's casinos as well as the Stratosphere.

"It depends on who's looking for that strong foothold into the Illinois market," Ader said.