Hurricane fallout brings end to bid for Golden Nuggets

Fallout from Hurricane Ike's wipeout of the Texas coast reached Nevada in the form of a wet blanket on an offer to buy the parent company of the Golden Nugget hotel-casinos in Las Vegas and Laughlin.

Tilman Fertitta told the U.S. Securities and Exchange Commission on Tuesday it is unlikely he can make good on an offer to buy Landry's Restaurants Inc. at $21 per share.

That's because last month's hurricane washed out lucrative Landry's properties in the Galveston, Texas, area that were critical to the financing of Fertitta's offer.

The result is Fertitta, who is already president, chairman and chief executive officer of Landry's, will need to come up with another offer if he wants to buy the company from shareholders.

It won't be easy considering the state of the credit markets and the toll Ike took on the company.

"It is very difficult in this market to get any financing whatsoever," KDP Investment Advisors bond analyst Barbara Cappaert said.

The hurricane did an estimated $50 million in damage to Landry's restaurants in Houston; Galveston; and Kemah, Texas; some of which may not open again until 2009.

The hurricane disruption undermined Fertitta's offer because the proposed deal was contingent on the company meeting certain financial benchmarks on a trailing 12-month basis. Before the storm hit, Landry's was meeting those benchmarks, but the closure of many of the company's best restaurants put the deal in jeopardy.

According to a filing with the Securities and Exchange Commission, Fertitta will try to put together a new deal, "at a substantially reduced price."

Although Cappaert downgraded $165 million in second lien loans on the Golden Nugget to "C" to reflect a 50 percent to 60 percent recovery potential, she said Landry's restaurant and casino businesses are fundamentally sound.

"They basically have decent businesses; they just have a lot of leverage on the Golden Nugget side and a lot of proposed leverage if they go through with the buyout," she said.

Cappaert said profit margins are about 13 percent on the restaurant side and 20 percent on the casino side. By comparison, a grocery store might generate margins of 2 percent to 4 percent, she said.

Landry's Restaurants shares finished Tuesday at $10.76 on the New York Stock Exchange, down $2.35, or 17.93 percent.

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.