Saturday, August 09, 2003
Copyright © Las Vegas Review-Journal

Sources say Ameristar sole Horseshoe bidder

Deal possible for individual casinos

Jack Binion Horseshoe Gaming's owner wants best possible price for all three casinos, sources say

Ameristar Casinos' $1.39 billion bid for Jack Binion's Horseshoe Gaming Holdings Corp. remains the only offer to buy the three-riverboat company, although other companies are interested in buying single properties, sources said Friday.

Horseshoe Gaming operates casinos in Hammond, Ind.; Bossier City, La.; and Tunica, Miss.

Las Vegas-based Ameristar is now finishing its financing arrangements for its recent offer, a Wall Street source who spoke on condition of anonymity said.

"Ameristar's the only company bidding on all three," the source said. "Ameristar's properties don't overlap with (Binion's). How many (casino operators) can say that about all three Horseshoe properties? Not many."

Ameristar owns and operates two casinos in Jackpot and riverboat casinos in Vicksburg, Miss.; Council Bluffs, Iowa; St. Charles, Mo.; and Kansas City, Mo.

Horseshoe is the largest privately held gaming company in the United States with $840 million in annual revenue and 7,800 employees.

Ameristar's offer to buy all three boats is a plus, the Wall Street source said.

"Jack doesn't want to hold three auctions that take forever," the source said. "He wants the best possible price for all three."

UBS Warburg analyst Robin Farley in a recent research note explained Horseshoe's appeal to Ameristar.

"We believe Ameristar could be interested in an acquisition of Horseshoe because it does not yet have a presence in the Chicagoland market, and none of the two companies' properties are in overlapping markets," Farley said.

In his own research note, Deutsche Banc Securities casino industry analyst Marc Falcone said a Horseshoe purchase would make Ameristar the fifth-biggest cash flow generating U.S. casino operator.

"Based on some very preliminary calculations, we believe the acquisition of Horseshoe by Ameristar would be better than 40 percent accretive to Ameristar's (earnings per share), in addition to increasing its (operating cash flow) by approximately 98%," Falcone wrote. "We think the acquisition could add an incremental $1.30 (or more) in free cash flow per share."

Falcone based his projection on a sales price of between $1.35 billion and $1.4 billion, or roughly 6.75 times Horseshoe's annual cash flow.

Falcone mentioned a couple of other companies that might still want to buy single Horseshoe properties.

"Clearly, Ameristar Casinos has been the most rumored suitor for the company, however, we believe a number of other operators could also have an interest in Horseshoe or its individual assets, including Harrah's Entertainment, MGM Mirage, and Penn National Gaming," Falcone wrote.

Farley said several companies, including Argosy Gaming and MGM Mirage, have effectively ruled out buying one or more Horseshoe properties.

"MGM Mirage had been looking to establish a presence in the lucrative Chicagoland market, though given what strong management Horseshoe has, (MGM Mirage) feels it would not be able to add much to property performance and is therefore not looking at a potential transaction," Farley wrote.

Falcone suggested Binion has the patience to wait for a price he likes.

"In our view, Jack Binion still has a strong desire to be active in the gaming industry and we wouldn't be surprised to see him hold onto his chips unless the price is very attractive," Falcone said.

Binion's Horseshoe in downtown Las Vegas wouldn't be affected by a Horseshoe Gaming sale. Jack Binion maintains a very small ownership stake in the downtown property he used to run so he can keep his Nevada gaming license.

Horseshoe executives didn't return phone messages and Ameristar corporate policy prohibits its spokeswoman from commenting on merger and acquisition reports.