Investors group sues Archon over stock redemption price

A group of shareholders sued one-time Sahara owner Archon Corp. in U.S. District Court last week, saying the casino operator is undervaluing the redemption price of preferred stock issued by the company 14 years ago.

The shareholders -- nine investment funds -- claim in their lawsuit that Archon is undervaluing 4.4 million shares of preferred stock by more than $7 million. The shareholders, the largest of which is New York-based asset management firm D.E. Shaw, control about half of the preferred shares.

Archon, which operates the Pioneer Club in Laughlin and is selling the Strip land on which the Wet 'n Wild water park once stood to a Texas developer for $475 million, wants to redeem the preferred stock, on which it hasn't paid dividends for more than a decade.

The company issued the preferred stock when it was known as Sahara Gaming Corp. In addition to the Pioneer, the company owned the Sahara and Santa Fe casinos. The Sahara was sold to late gaming pioneer William Bennett in 1995 and the Santa Fe was sold to Station Casinos in 2000.

Under the company's plan, which was detailed in Archon's quarterly report that was filed Aug. 20 with the Securities and Exchange Commission, the stock would be redeemed to investors with all accrued and unpaid dividends.

However, Archon wants to pay back the stock with 16 percent interest on just the liquidation cost. The shareholders believe the interest should also be applied to the accrued and unpaid dividends.

Archon would redeem the stock for about $5.24 per share; the plaintiffs believe the shares should be redeemed for $8.69. Under Archon's plan, the value of preferred stock would be $10.9 million; the shareholders believe the stock's value is $18.2 million.

D.E. Shaw, which controls more than 707,000 shares of Archon's preferred stock, said its investors would be out $1.7 million if Archon is allowed to proceed with its plan.

The suing shareholders believe holders of Archon's common stock, which now trades over the counter, would benefit if the company were able to proceed with a preferred stock redemption plan.

Archon Chairman and Chief Executive Officer Paul Lowden, who controls about 75 percent of Archon's common stock and about 18 percent of the preferred stock, would receive a net benefit of about $8.7 million, according to the lawsuit.

D.E. Shaw, which bid unsuccessfully to acquire the parent company of the Riviera last year, owns about 300,000 shares of Archon's common stock. The asset management firm protested about a year ago when Archon tried to grant what shareholders believed to be unfair options to family members.

D.E. Shaw spokeswoman Darcy Bradbury said the company couldn't comment on the lawsuit.

Archon didn't return phone calls requesting comment on the lawsuit. In addition to Lowden, Archon's board members include his wife, former state Sen. Sue Lowden, who is now chairwoman of the state Republican Party, and veteran state Sen. Bill Raggio, R-Reno, who is the Senate majority leader.

In its quarterly report, Archon said it has entered an option agreement to sell the 27-acre Wet 'n Wild site to a partnership between Texas developer Christopher Milam and Australian casino operator Publishing and Broadcasting Ltd., which is controlled by that country's richest man, James Packer.

Archon said the Pioneer Club's revenue has declined over the last few years due to competition from American Indian casinos in California and Arizona.

Archon said its doesn't plan any investments in its Laughlin casino and expects that revenue and expense trends at the Pioneer may not change significantly over the next few years.