Borgata decision looms for Boyd

Boyd Gaming Corp. officials have a decision to make.

The company has until Nov. 12 to determine whether it will assume MGM Resorts International's stake in Atlantic City's Borgata or welcome Los Angeles-based private equity firm Leonard Green & Partners as its joint venture companion in the hotel-casino.

MGM Resorts agreed to sell its 50 percent share to the firm, which would also assume half of the Borgata's debt. The deal is expected to generate much-needed proceeds of about $250 million for MGM Resorts.

The question for Boyd Gaming is whether the company wants a new partner or all of the Borgata, which has an enterprise value of $1.35 billion based on the offer.

In a filing with the Securities and Exchange Commission, Boyd stated it was "evaluating its options."

Credit Suisse gaming analyst Joel Simkins gave investors the thumbs-up toward Boyd Gaming, "a levered contrarian play," as he put it in a coverage initiation report. Boyd has not been well received by Wall Street lately, but Simkins said shares in the company would be valuable once the Las Vegas market rebounds.

"We are not suggesting Boyd is a short-term investment," Simkins said.

He isn't sold, however, on Atlantic City. Competition from Pennsylvania, Maryland and New York don't bode well for Borgata's prospects. Simkins believes Boyd should let Leonard Green prevail.

"Even if the deal for this cash-flow stream looks cheap on paper, it could be received poorly by the investment community," Simkins said.

Union Gaming Group principal Bill Lerner said Boyd Gaming has a third option: sell its 50 percent stake in the Borgata to Leonard Green. He said the scenario "makes a big presumption that Leonard Green is interested in 100 percent of the asset."

The other moving part in this deal is Leonard Green.

Last week, Bloomberg News reporter Beth Jinks revealed the firm as the Borgata buyer.

Leonard Green, founded in 1989, manages about $9 billion and has holdings in companies such as fitness club operator Equinox, Whole Foods Market and Sports Authority.

Leonard Green bid unsuccessfully for control of M Resort's $860 million debt in partnership with the property's founding Marnell family. Penn National Gaming won the auction, agreeing to pay $230.5 million.

Lerner hinted that Leonard Green could pursue other potentially available Las Vegas assets, including Green Valley Ranch Resort, Aliante Station and the Las Vegas Hilton.

As last week's column stated, the recession created casino-buying opportunities.

Howard Stutz's Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. He blogs at lvrj.com/blogs/stutz.