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Thoughts on the Pinnacle Ameristar Merger

Last edit: Chuckmonster on Friday, 21st December 2012 1:07 pm
Last response by wpsteel66 1st January 11:36am

For those following the gaming biz, Pinnacle Entertainment is buying Ameristar Casinos. Details are here.

What interests me here is the relationship between Ameristar and MGM as Ameristar bolted M Life onto its comp club last year... giving their customers a chance to redeem comps in Vegas. For much the same reason, Pinnacle has long eyed having a flagship property on the Strip and bid heavily on the Tropicana before letting Columbia Sussex overpay for it. They also bought and imploded the old Sands AC and had completed plans to build a new joint.

By logical extension, the merger of these isolated fish into a rather large school makes having a rolodex and no Vegas property to extract value from a liability.

This deal might send some shockwaves through the casino biz... particularly on the Strip where are are a number of properties yearning for new ownership - new and old, online and offline, spiffy and decrepit.

I see Cosmopolitan being the primary target here. MGM (who recently refinanced their nightmare and unloaded $119M of unsold Veer units to a bulk buyer) could easily unload Mirage to Ruffin and use the proceeds and some financing to acquire Cosmopolitan. Not just to solidify their neighborhood but as a defensive move to keep Pinnacle from acquiring anything on The Strip that isn't a mid-tier or lower property, let alone something in the middle of City Center.

Then again... who wants to pay top dollar for an underperforming property.... even if it still has that Nu-Casino Smell(tm)

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 vespajet responded on Friday, 21st December 2012

Neither company has any footprint in Las Vegas other than their corporate offices and by acquiring Ameristar, Pinnacle gets rid of a potential competitor to them finally raising their flag in Las Vegas.

MGM's selling of units in Veer may be just the start of some deals to raise some $$$ as well as some divesting of properties in order to spearhead a potential Cosmo purchase. I would not be surprised if they sell off part of Vdara to a company along the lines of Hilton Grand Vacations. The Mirage (and maybe a few other properties outside of Vegas) to Ruffin sale has been long rumored and is the deal that makes the most sense for them.

Pinnacle isn't going to get a high-end property on The Strip unless they built it themselves. There are several parcels along the Strip that could definitely be in play in the near future. Now would they be willing to stay out of the Vegas market for several years while the resort it built? Probably not. They probably need to acquire a property like the Riv, the Trop or Rio in order to get themselves established in the market. Darkhorse acquisition would be the Sahara if SLS cannot get the funding to redo the property.

 Chuckmonster replied on Friday, 21st December 2012

i thought about sls, but what is that place worth since it has been completely gutted. you're buying a half finished project, not a turn key solution. PLUS the location supremely sucks, the bones of the building aren't ideal and who knows if nazarian's pride will allow him to let go of the idea of an sls las vegas.

 HedgedBettor responded on Friday, 21st December 2012

Talk on the street today (I trade takeovers for a living) was about an MGM counterbid for Ameristar. The logic runs as follows: MGM is levered 10x EBITDA, topping the Pinnacle bid would involve paying 8x EBITDA. Therefore, even if MGM funded with 100% debt, a competing offer would actually delever MGM!

The above commentary is proof that Wall Street is full of idiots, since there's no way MGM is gonna bid for ASCA and that would most assuredly lower MGM's credit quality (better metrics balanced against lower-quality streams of cashflow).

Also, notwithstanding a Dealreporter article saying the Ameristar didn't do a "market check" (i.e. look for bidders after Pinnacle approached them), Ameristar did a thorough review of strategic alternatives 2 years ago so everybody in the business has taken a look at the books and passed.

 wpsteel66 responded on Tuesday, 1st January 2013

I did not see the PNK buyout coming... was expecting MGM. I read a story that says do not count out MGM bidding higher than PNK.

My Ameristar host told me a couple weeks ago that their stock was strong and they were considering buying another company to expand... so much for that.

I was expecting Ameristar to get back into their pre-recession mind-set in 2013 and expand. They were in the bidding for Tropicana Vegas before Yung came in at the last second and gave a out landish bid. Ameristar also was ready to sign on the line for Horseshoe Tunica before Harrahs stepped in. Ameristar was really intersted in Biloxi also, but Katrina stopped that.