Boyd rejects chance to purchase all of Borgata
Boyd Gaming Corp. said Monday it isn't turning its back on Atlantic City, even though it turned down a chance to buy the 2,800-room Borgata outright because it believes there are better investment opportunities outside the troubled gaming market.
Boyd Gaming's decision not to match a $250 million offer for MGM Resorts International's 50 percent stake in the Borgata means it will gain a new silent partner in Atlantic City's largest resort.
Boyd will continue to operate the Borgata, which saw a nearly 7 percent decline in revenues during the third quarter.
"We remain confident in the future of Borgata and we remain comfortable in our current position," Boyd Gaming CEO Keith Smith said during the company's quarterly earnings conference call with analysts and investors.
Smith said there wasn't much more reasoning in the decision beyond the company statement that said, "Given other opportunities and our current focus on deleveraging our balance sheet, the current offer would not provide a sufficient return on investment for our shareholders."
As the managing partner in the joint venture with MGM Resorts, Boyd had the right to match the offer, reportedly made Oct. 12 by Los Angeles-based private equity firm Leonard Green & Partners.
Wall Street backed the company's decision on Borgata.
"We give Boyd credit for exercising caution here on increasing its exposure to the Atlantic City market," J.P. Morgan gaming analyst Joseph Greff told investors. "In fact, Boyd indicated this would have generated an insufficient return on investment."
Gaming revenues in Atlantic City fell 11.6 percent in September, the 25th straight monthly decrease.
Smith said Boyd Gaming supports efforts to improve the market's prospects and revitalize tourism. The company is part of the recently formed Atlantic City Alliance and backs New Jersey Gov. Chris Christie's proposals to overhaul the industry.
"Like all markets, Atlantic City continues to be challenged," Smith said following the conference call. "Atlantic City will not be down and out forever."
He hopes the stalled Revel project, which would add 2,000 hotel rooms to the market, won't get built.
"Additional capacity is not needed," Smith said. "We hope the competitive landscape stays as is."
Smith said the company did not have any discussions about the Borgata deal with the potential buyer, since MGM Resorts laid out the basics of the proposed transaction in a letter. If the deal were to change, Boyd Gaming would receive another 30-day period to match the new offer.
"We appreciate Boyd giving a quick response as to their option to exercise their right to match the offer we have received for our share of the Borgata," MGM Resorts spokesman Alan Feldman said. "We will now move forward with our bidder in the process of obtaining the necessary regulatory approvals and finalizing the sale."
Smith wouldn't discuss any other potential acquisition opportunities for Boyd Gaming, saying the company was more focused on reducing its long-term debt of $2.4 billion and strengthening its balance sheet.
Smith said, however, the company believes recovery in the Las Vegas locals market is not tied to recovery on the Strip and other economic indicators, such as housing sales and an improvement in Las Vegas unemployment.
Boyd Gaming said third-quarter earnings were $5.6 million, or 6 cents a share, for the period that ended Sept. 30. A year ago, the Las Vegas-based company had net earnings of $6.3 million, or 7 cents a share.
The company's quarterly revenue in the quarter was $595.4 million, a decline of 4.1 percent.
In Las Vegas, the company's locals gaming segment, which includes Sam's Town and the Coast Casinos chain, had revenues of $145.6 million in the quarter, compared to $150.7 million for the same quarter a year ago. Boyd executives said customer spending declined, but visitation remained solid.
In downtown Las Vegas, Boyd's three casinos generated net revenues of $51.9 million in the quarter, compared to $54.9 million in the same period a year ago. Company officials said spending was down, but there was evidence of a recovery in the Hawaiian economy -- the primary source of Boyd's downtown business -- which could boost results in upcoming months.
Boyd Gaming shares rose 39 cents, or 4.88 percent, Monday in trading on the New York Stock Exchange to finish the day at $8.38.
Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.
