Fertitta brothers set to take home the jackpot in Red Rock IPO

The saying goes that the house always wins. In Red Rock Resorts’ upcoming initial public offering, the Fertitta brothers certainly stand to come out on top.

Frank, 54, and Lorenzo, 47, Fertitta are CEO and director, respectively, of Las Vegas-based Red Rock, a casino operator scheduled to price its IPO today. At the high end of its marketed range, Red Rock could raise $572.25 million, making it the largest IPO so far this year, according to data compiled by Bloomberg that excludes real estate investment trusts, special purpose companies, and closed-end and country funds.

The brothers stand to get several jackpots out of the deal: proceeds from the sale of their casino management unit, annual payments linked to the tax benefits of becoming a public company and a huge chunk of voting rights once shares are sold. They’ll also get the standard IPO proceeds from selling their own shares.

Red Rock is pitching the brothers’ control over the company as a plus for investors, according to its roadshow presentation.

“We’re significantly committed,” Frank Fertitta said in the presentation. “This is a big part of our family’s wealth and investment, and we think it will be a good partnership between us and the public shareholders going forward.”

Not everyone agrees, however.

“It’s not ideal, that structure,” said Kathleen Smith, principal at Renaissance Capital, which manages IPO-focused exchange-traded funds. “It’s not that we don’t like the family, the issue is with the distributions and that they have so much control.”

Representatives for Deutsche Bank, which is leading the IPO, and Red Rock declined comment on the IPO.

The biggest windfall — about $335 million — will come from the Fertittas’ casino-management unit. As part of the IPO, Red Rock will buy Fertitta Entertainment for $460 million minus debt, according to the offering documents. The brothers will each receive $113.5 million from the sale, while trusts for the benefit of their six children will receive a combined $106.8 million.

That’s a hefty premium to the valuation given in a management contract filed with regulators in February. According to the filing, if Fertitta Entertainment were to be sold its value would equal management fees — about $53 million last year, according to the IPO prospectus.

The brothers expect to be the sole owners of new super-voting shares in the company after the IPO, giving them 87 percent of the voting power, assuming the minimum anticipated number of shares are sold. New shareholders will buy into Class A shares with combined voting power of just 7.3 percent.

Investors aren’t just betting on the Fertitta brothers’ management, they’re also gambling on the health of the Las Vegas gaming market. Central to Red Rock’s growth strategy, as laid out in the IPO prospectus, is belief that “our existing Las Vegas portfolio should benefit from improving economic conditions.”

The Fertittas know firsthand the pitfalls of depending on that market.

In 2007, the brothers took the company, then called Station Casinos, private in a $9.1 billion leveraged buyout, months before the casinos business was hit by the financial crisis and housing market collapse. Station filed for bankruptcy in July 2009.

That could have been the end of the story. Instead the pair, who also own the Ultimate Fighting Championship mixed martial arts league, fought off a hostile offer in bankruptcy court from Boyd Gaming Corp. They pumped about $250 million of their own money into the company, and emerged in 2011 with a stake twice the size of the one they had before the buyout, Frank Fertitta said during the roadshow presentation.

Deutsche Bank advised the bidders and provided debt financing when Station Casinos was taken private. Through the bankruptcy process, Deutsche Bank ended up with a 24 percent stake in what’s now Red Rock Resorts. It plans to sell some of it when the casino company goes public.

The Las Vegas economy is stronger now, with retail sales, employment and real estate growth in recent months.

Still, Las Vegas’ continued prosperity features high on the list of potential risk factors for Red Rock.

“We depend on the Las Vegas locals and repeat visitor markets as our key markets, which subjects us to greater risks than a gaming company with more diverse operations,” the company said in the prospectus.

Red Rock was founded by the Fertittas’ father, Frank, a former blackjack dealer who opened The Casino just off the Strip in 1976. It was among the first to cater specifically to Las Vegas locals, rather than to tourists. The company now owns or manages 21 casinos in three states. Last year it had net income of $143 million on net revenue of $1.35 billion, according to the filing.

On top of the proceeds of the sale, owners of the company could also receive substantial payments from Red Rock going forward. Converting their shares from a limited liability corporation to a traditional corporation comes with tax benefits, of which they’ll keep up to 85 percent.

If the underwriters of the Red Rock IPO chose to buy all the shares on offer to them, those payments could total as much as $59 million for the Fertittas and their partners, according to the offering statement.

“If they can pull off a deal like this, that just re-emphasizes the fact that Vegas has come back,” said William Thompson, a professor emeritus of government at UNLV who studies the casino industry.

ad-high_impact_4
Business
UNLV Tech Park innovation building breaks ground
Construction on the first innovation building at the UNLV Tech Park is underway. (Bailey Schulz/Las Vegas Review-Journal)
Caesars Forum Meeting Center
Caesars broke ground Monday on its $375 million Caesars Forum Meeting Center (convention center) just east of the High Roller observation wheel. (Caesars Entertainment)
Technology reshapes the pawn shop industry
Devin Battersby attaches a black-colored device to the back of her iPhone and snaps several of the inside and outside of a Louis Vuitton wallet. The device, installed with artificial intelligence capabilities, analyzes the images using a patented microscopic technology. Within a few minutes, Battersby receives an answer on her app. The designer item is authentic.
Recreational marijuana has been legal in Nevada for one year
Exhale Nevada CEO Pete Findley talks about the one year anniversary of the legalization of recreational marijuana in Nevada. (K.M. Cannon/Las Vegas Review-Journal)
Young adults aren't saving for retirement
Financial advisors talk about saving trends among young adults. (Bailey Schulz/Las Vegas Review-Journal)
President Trump’s tariffs could raise costs for real estate developers, analysts say
President Donald Trump made his fortune in real estate, but by slapping tariffs on imports from close allies, developers in Las Vegas and other cities could get hit hard.
Las Vegas business and tariffs
Barry Yost, co-owner of Precision Tube Laser, LLC, places a metal pipe into the TruLaser Tube 5000 laser cutting machine on Wednesday, June 20, 2018, in Las Vegas. Bizuayehu Tesfaye/Las Vegas Review-Journal @bizutesfaye
Nevada Film Office Connects Businesses To Producers
The director of the Nevada Film Office discusses its revamped locations database and how it will affect local businesses. (Bailey Schulz/Las Vegas Review-Journal)
Opendoor isn't the typical house flipping company
Unlike most house flippers, the company aims to make money from transaction costs rather than from selling homes for more than their purchase price.
The Venetian gondoliers sing Italian songs
Gondolier Marciano sings a the classic Italian song "Volare" as he leads guests through the canals of The Venetian in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal)
Building In Logandale
Texas homebuilder D.R. Horton bought 43 lots in rural Logandale. (Eli Segall/Las Vegas Review-Journal)
Indoor farming in Southern Nevada
Experts discuss Nevada's indoor farming industry. (Bailey Schulz/Las Vegas Review-Journal)
Former Fontainebleau could have become a Waldorf Astoria
Months after developer Steve Witkoff bought the Fontainebleau last summer, he unveiled plans to turn the mothballed hotel into a Marriott-managed resort called The Drew. But if Richard “Boz” Bosworth’s plans didn’t fall through, the north Las Vegas Strip tower could have become a Waldorf Astoria with several floors of timeshare units. (Eli Segall/Las Vegas Review-Journal)
LVCVA CEO Rossi Ralenkotter announces plans to retire
Rossi Ralenkotter, CEO of the LVCVA, on Tuesday confirmed a Las Vegas Review-Journal report that he is preparing to retire. Richard N. Velotta/ Las Vegas Review-Journal
Cousins Maine Lobster to open inside 2 Las Vegas Smith’s stores
Cousins Maine Lobster food truck company will open inside Las Vegas’ two newest Smith’s at Skye Canyon Park Drive and U.S. Highway 95, and at Warm Springs Road and Durango Drive. Cousins currently sells outside some Las Vegas Smith’s stores and at Fremont Street and Las Vegas Boulevard. (K.M. Cannon/Las Vegas Review-Journal)
Las Vegas home prices to continue to rise, expert says
Lawrence Yun, chief economist at the National Association of Realtors, gives homebuyers a pulse on the Las Vegas housing market. (Eli Segall/Las Vegas Review-Journal)
NV Energy announces clean energy investment
The company is planning to add six solar projects in Nevada, along with the state's first major battery energy storage capacity. Bailey Schulz/Las Vegas Review-Journal
3 Mario Batali restaurants on Las Vegas Strip to close
Days after new sexual misconduct allegations were made against celebrity chef Mario Batali, his company announced Friday that it will close its three Las Vegas restaurants July 27. Employees of Carnevino Italian Steakhouse, B&B Ristorante and Otto Enoteca e Pizzeria, all located in The Venetian and Palazzo resorts, were informed of the decision Friday morning. Bastianich is scheduled to visit the restaurants Friday to speak to employees about the next two months of operation as well as how the company plans to help them transition to new positions.
Nevada has its first cybersecurity apprenticeship program
The Learning Center education company in Las Vegas has launched the first apprenticeship program for cybersecurity in Nevada. It was approved by the State Apprenticeship Council on May 15. (K.M. Cannon/Las Vegas Review-Journal)
Las Vegas union members voting to authorize the right to strike
Thousands of Las Vegas union members voting Tuesday morning to authorize the right to strike. A “yes” vote would give the union negotiating committee the power to call a strike anytime after June 1 at the resorts that fail to reach an agreement. (Todd Prince/Las Vegas Review-Journal)
Small businesses struggle to find qualified candidates
A 2018 survey found that over two-thirds of small businesses in Nevada find it somewhat to very difficult to recruit qualified candidates. Bailey Schulz/Las Vegas Review-Journal
Nevada secretary of state website offers little protection against fraudulent business filings
Property developer Andy Pham tells how control of his business was easily seized by another person using the secretary of state website.
Caesars may be going solo in its marijuana policy
Several Southern Nevada casino companies aren’t following Caesars Entertainment’s lead on marijuana testing.
How much is the Lucky Dragon worth?
Less than a year-and-a-half after it opened, the Lucky Dragon was in bankruptcy.
Gyms and discount stores take over empty retail spaces
Grocery stores used to draw people to shopping centers. But many large retail spaces have been vacant since 2008. Discount stores like goodwill and gyms like EOS Fitness are filling those empty spaces, and helping to draw shoppers back in. K.M. Cannon/Las Vegas Review-Journal
Funding source of Las Vegas stadium for the Raiders is sound, expert says
The stadium is funded in part by $750 million of room taxes, the biggest such tax subsidy ever for a professional sports stadium. Robert Lang, executive director of Brookings Mountain West and The Lincy Institute at UNLV, says that is a good use of public funds. (Richard Velotta/Las Vegas Review-Journal)
Las Vegas needs light rail, expert says
Robert Lang, executive director of Brookings Mountain West and the Lincy Institute said he is afraid of a "congestion mobility crisis." Las Vegas needs a light rail system, he said, to accommodate the city's growing number of attractions. (Richard Velotta/Las Vegas Review-Journal)
Three takeaways from Wynn Resorts' Earnings Call
Matt Maddox came out swinging in his first earnings conference call as Wynn Resorts chief executive officer, boasting of record Las Vegas quarterly revenues and applicants lining up for work.
Star Wars VR Comes to Las Vegas
Sneak peak at the new "Star Wars: Secrets of the Empire" VR experience at the Grand Canal Shoppes.
Elaine Wynn continues her fight to change Wynn Resorts board
Elaine Wynn, the largest shareholder of Wynn Resorts Ltd., is seeking to kick a friend of her ex-husband Steve Wynn off the company’s board of directors. (Todd Prince/Las Vegas Review-Journal)
TOP NEWS
News Headlines
ad-infeed_1
ads_infeed_2
Local Spotlight
Add Event
Home Front Page Footer Listing
Circular
You May Like

You May Like