Coast says company is not for sale

Tuesday, Dec. 3, 2002 | 11:15 a.m.

Las Vegas neighborhood casino operator Coast Casinos Inc. has never talked to Harrah's Entertainment Inc. about a possible acquisition, a Coast executive said Monday.

The locals' casino company also isn't for sale, Coast President Harlan Braaten said, aiming to dispel persistent rumors that the company is a potential takeover target of the giant Harrah's casino chain.

Coast Casinos -- a company known for generating reliable revenues from its portfolio of locals' Las Vegas casinos -- has been courted regularly by investment banks looking to drum up merger business. That courtship, Braaten said, landed the company in the midst of a rumor that Harrah's wants to acquire Coast to gain a foothold in the lucrative locals market.

Despite a news report to the contrary, Braaten denies the rumor.

"There's no truth to any kind of rumor that Harrah's and (Coast) are in any kind of discussions," Braaten said Monday. "We've never talked with Harrah's."

The rumor spread after an investment banker alerted Coast executives that the banking firm would be gauging interest from Harrah's in a possible Coast acquisition, Braaten said.

Harrah's declined to comment on Coast and other recent merger speculation. The company is the most geographically diverse in the casino business and has also been one of the most aggressive on the acquisition trail. The company has an obligation to explore any potential expansion deal that may benefit shareholders, Harrah's spokesman Gary Thompson said.

Braaten declined to speculate on whether Harrah's would be interested in a potential acquisition. Coast isn't seeking to sell in any case, he said.

With four shareholders controlling more than 60 percent of Coast's stock, the company makes a less certain takeover target than any number of other larger, publicly traded casino companies, he said.

"Any company has to consider any offers that are made to them. But with the small number of (majority) shareholders ... it has to be a dang good deal for it to make sense."

"That's not to say a deal can't be done that's in the best interest of our shareholders."

Nine company directors and executives, including Braaten, control about 64 percent of Coast's stock, according to a securities filing made earlier this year. Company Chairman and Chief Executive Officer Michael Gaughan owned about 31 percent of stock as of April.

The news comes amid more heated speculation about mergers in the casino industry following a dry spell that held up capital for expansion projects after the Sept. 11 terrorist attacks. As the industry matures and fewer opportunities to build full-fledged casinos remain, gaming companies may explore acquisitions as a way to spur future growth, stock analysts say. Casinos also are cutting costs and banking cash for future deals, making acquisition plans more realistic, they add.

Coast is also taking a planned initial public stock offering at its own pace. The company announced a few months ago that it would put on indefinite hold an IPO initially filed with securities regulators in May. The company expects to hold off on a possible offering until at least the beginning of next year, when it will assess the IPO market again.

The company isn't in immediate need of capital and can wait until the stock market is less choppy and more receptive to public stock offerings, Braaten said.

The company hasn't completely ruled out an IPO.

"We're going to try and time it to (when) it's most advantageous for us," he said. "When it's right we'll be out there."

Coast is smaller than Station Casinos Inc., the dominant competitor in the Las Vegas locals' market, and isn't closely followed by stock analysts. But the company's business model is often compared to Station Casinos' -- a company that has become a darling on Wall Street for its ability to generate yearly revenue growth without spending lavishly on new casinos and property upgrades like its peers in the megaresort business.

Station Casinos also has earned analysts' recommendations because of a virtual monopoly on land slated for casino development across Las Vegas, which continues to grow in size and population. The company expects to build its ninth neighborhood casino in the upscale, fast-growing suburb of Summerlin.

While Coast hasn't announced any new casinos, it has busily added features to its four locals casinos that aim to boost revenue, executives say.

At The Orleans, the company expects to finish a 9,000-seat arena by May in time to open with the inaugural season of the Las Vegas Wranglers professional hockey team. The company also expects to begin construction next year on a $65 million expansion of the Suncoast in Summerlin, which will expand the casino and add parking. This comes after a hotel tower addition at the Orleans and an expansion of rooms offered at the Suncoast.

Coast recorded about $518 million in revenue last year to Station's $839 million and earned about $19 million in 2001, close to half of Station's 2001 net income.

The company aimed to use proceeds from the IPO -- estimated to raise as much as $200 million -- to pay down debt and for general purposes including expansion and remodeling projects.