Las Vegas Sun

March 28, 2024

Binion may be thinking of deal

Executives at Horseshoe Gaming Holding Corp. of Las Vegas for the first time Wednesday confirmed that the company may be interested in merger or acquisition deals -- but declined further comment.

During a conference call to discuss second-quarter earnings, President Roger Wagner said "there has been some interest by other gaming companies" in a deal.

"Contrary to media reports, no deals have been made and we are only in the preliminary discussion stages with interested parties," Wagner said.

Horseshoe Gaming -- which owns single riverboat casinos in Tunica, Miss., Bossier City, La., and Hammond, Ind. -- is controlled by Jack Binion, the son of the late Las Vegas gaming legend Benny Binion. Benny Binion owned Binion's Horseshoe in downtown Las Vegas before the property eventually passed down to his daughter, Becky Behnen. Jack Binion still holds a minor stake in the property.

Binion recently relocated Horseshoe Gaming to Las Vegas from Illinois because the company had sold off its only property in the state where it was previously headquartered. Binion also wanted to be closer to his permanent home in Las Vegas, representatives said.

The company's high-end casinos -- stand outs in a primarily lower-rent riverboat markets -- make the company a desirable purchase target, analysts said. "Horseshoe has developed an excellent reputation, primarily in the South, as the place for serious gamblers, as Horseshoe properties cater to premium players via top notch facilities, high table limits, available credit and bend-over-backwards service," Banc of America Securities analyst David Vas said in a research note to investors last week. Binion is "probably one of the best operators in the business" in large part because his riverboat properties have captured a lion's share of their respective markets and have achieved among the highest profit margins in those regions, added Bear, Stearns & Co. bond analyst John Mulkey.

Potential buyers will have difficulty duplicating his success and will likely pay a premium for the assets, Mulkey said.

"You're paying a healthy multiple on cash flows that will be difficult to grow," he said.

Horseshoe is the "dominant player" in both the Tunica and Shreveport/Bossier City markets, far exceeding competitors in both revenues and cash flow, Vas wrote.

"Whereas there could be room for some improvement on the cost side, we would not expect (any buyer) to be able to significantly ramp up cash flows at these two properties," he said.

Recent analyst reports have noted rumors that Midwest riverboat operator Ameristar Casinos Inc. of Las Vegas has forwarded a $1.39 billion bid to buy the Horseshoe.

During the conference call, Wagner said the company has entertained similar overtures from "several prominent gaming companies" over the years that undertook similar due-diligence efforts to explore a purchase.

The company on Wednesday reported a 380 percent increase in profit, to $11.8 million, during the second quarter. Improved business in Indiana and cost controls helped results, Wagner said. Revenue rose 1.4 percent, to $212.4 million. The company didn't release cash flow figures for its properties, though executives acknowledged that overall cash flow declined from a year ago.

A one-time $5.1 million charge due to a retroactive casino tax hike in Indiana contributed to the cash flow drop, while lower interest expenses helped boost profit compared to a year ago.

Mulkey has estimated that the company's cash flow declined 23 percent, to $38.5 million, compared to the year-ago period. Excluding the Indiana tax charge, the company's cash flow would have dropped by 12.8 percent, he said.

Cash flow -- typically defined as earnings before factoring interest, taxes, depreciation and amortization -- is a key indicator of casino performance.

Revenue jumped 12 percent at Hammond, Ind., to $83.5 million, helped by the ability to permanently dock gambling boats starting in August 2002. A revenue increase was offset by a decline in profit margin as Indiana increased casino taxes on the boats, Wagner said.

Revenue fell 2 percent in Bossier City, La., to $65.2 million. A casino tax increase in Louisiana, coupled with reduced slot and table game play hurt returns.

Revenue plunged 12 percent in Tunica, Miss., which is facing fierce competition in the form of a "slot war" as nearby properties use promotions to lure patrons, Wagner said.

The maturing Tunica region has emerged as one of the country's most competitive gaming markets in recent years, with many operators "struggling just to prevent (cash flow) declines," Vas wrote.

The emergence of gambling in nearby states also has "sapped top line growth," he added.

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