Thursday, July 01, 2004
Copyright © Las Vegas Review-Journal

THE STRIP: Big step for bigger Boyd

Coast Casinos acquisition expected to give locals market player more size, more options

Boyd Gaming Corp.'s Stardust appears with Wynn Las Vegas under construction in the background late Tuesday. Boyd is expected to close its $1.3 billion acquisition of Coast Casinos today. An analyst says the deal gives Boyd the financial capability to redevelop the Stardust site if it so chooses. Photo by K.M. Cannon.

Boyd Gaming Corp. and Coast Casinos are set to complete their $1.3 billion merger today, creating the largest locals casino company in Nevada and one of the most diversified gaming enterprises nationwide.

Boyd Chairman Bill Boyd said the merger creates the fifth-largest gaming company in the world, and what will be the fourth-largest after MGM Mirage absorbs Mandalay Resort Group.

"In a lot of respects, size is good because it makes a lot of operations more economical," he said.

Deutsche Bank analyst Marc Falcone said the merger will also increase Boyd's presence in the "highly lucrative Las Vegas locals market" and create a substantial new growth pipeline for for the combined company.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said Boyd's increased focus on the supply-demand dynamics of the Las Vegas market will boost the company. He was referring to the population growth of Las Vegas combined with the cap the state Legislature placed on casino sites.

"And it gives them greater cash flow they can use and deploy," Greff said. "The next big catalyst for Boyd is the Stardust because of its central location. The merger gives Boyd the wherewithal (to raise the capital and redevelop the site on the north end of the Strip)."

Boyd said his company will seriously evaluate alternative redevelopment plans for the Stardust as soon as Wynn Las Vegas opens in April.

Hal Rothman, history department chairman at the University of Nevada, Las Vegas, said the merger also helps protect the emerging company from corporate raiders looking for takeover targets.

It becomes less attractive to buyers because the merger seriously increases the price while adding neighborhood casinos when any major operator would primarily be interested in a buyout for the Stardust site, the value of which is exploding with other developments at the north end of the Strip.

Eric Hausler, gaming analyst for Susquehanna Financial Group, added that the merger will change the face of Boyd from a company with a broad geographic base to one with a strong focus on Las Vegas and the locals market.

"Buying a larger share of one of the lowest-risk, highest-yield markets in this country is always a good move," Hausler said.

Under the terms of the merger agreement, Coast will become a wholly owned subsidiary of Boyd Gaming headed by Michael Gaughan, who previously owned Coast.

Boyd said Gaughan's agreement to stay on in a management role was critical.

In the merged company, Gaughan will continue to manage the company's casinos on the valley's west side, and Boyd managers will continue to oversee Sam's Town on the east side. All these properties serve the locals market.

Gaughan said he had Coast Casino partners who wanted to retire, and the merger made that possible while allowing him to keep doing what he does best and enjoys most.

Together, the emerging company, which will retain the Boyd Gaming name, will have revenues of about $2 billion and will operate 18 properties with 10,000 rooms nationwide. In Las Vegas, it will operate 11 hotel-casinos with a total of 6,600 rooms.

In addition, Coast has a 461-room expansion under way at The Orleans and recently broke ground on its $350 million Southcoast, which will have 700 rooms in the developing residential area south of Las Vegas on Interstate 15.

By comparison, Station Casinos, which has been locked in a stiff competition with Coast Casinos for the Las Vegas locals market, has revenues of about $1 billion and operates 11 hotel-casinos with a total of almost 3,000 rooms.

Boyd Gaming has 7,600 employees in Southern Nevada and 18,000 nationwide, which will be combined with Coast's 7,500 employees, all of whom work in Las Vegas.

However, Greff said the merger really will do nothing to change the dynamics of the locals market.

"Boyd will still manage and operate its casinos and Coast executives will still operate its (hotel-casinos)," he said.

Still, University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said the merger is a big deal, especially on the context of the proposed megamerger between MGM Mirage and Mandalay Resort Group which dwarfs the Boyd deal.

"It puts two landmark locals operators together," he said.

And the Boyds and the Gaughans will do what's good for Las Vegas, Thompson said.

"It's important that Michael Gaughan will keep a strong position in the company," he said.