Boyd CEO says Station Casinos bid is legitimate

28 October 2009

LAS VEGAS, Nevada -- Boyd Gaming Corp. has put the brakes on its $4.8 billion Echelon project for at least three to five years. But the casino operator has an idea of how to spend the money it raised for the Strip development: acquire a large chunk of Station Casinos out of bankruptcy.

During a conference call Tuesday with analysts, Boyd Gaming Chief Executive Officer Keith Smith said Station Casinos executives dismissed the company's Feb. 23 offer to purchase a significant portion of its rival for $950 million as a half-hearted gesture.

Smith said the bid is real. Boyd Gaming has a $2 billion line of credit designated for Echelon that can now be directed toward acquisitions.

"Let me be clear. This is a serious offer," Smith said in prepared remarks Tuesday. "Bankruptcy can be a distracting and expensive process and it does not appear to be in the best interests of anyone for this to drag on."

Station Casinos filed for Chapter 11 bankruptcy protection at the end of July. Last week, company attorneys asked the court to extend a deadline for the exclusivity period for filing a plan of reorganization until March.

After the earnings call, Smith said buying key assets within Station Casinos' 18-property portfolio in Southern Nevada makes sense for all parties, including Boyd Gaming shareholders, customers, and Station Casinos' creditors, employees and customers.

"We can deliver more value to the creditors with a fair offer and these assets," Smith said. "We believe strongly in the long-term viability of the Las Vegas market."

Station Casinos declined comment.

Smith added that Boyd might be interested in acquiring "distressed" properties and looking at opportunities in regional gaming markets.

Boyd Gaming suspended construction of Echelon on the site of the former Stardust more than a year ago, saying it would consider restarting efforts after this year. However, the continuing recession and the December opening of CityCenter may continue to depress the Las Vegas market.

"Given the ongoing weak economic conditions, the significant new supply coming online and a difficult capital-market environment for projects of this nature, resuming construction in the near term is not an option," Smith said.

It will cost Boyd Gaming $15 million this year to maintain and secure the Echelon site, which has several steel structures in place. The company expects the annual costs to go down next year and has no plans to remove any of the structures.

The recession also reduced Boyd Gaming's third-quarter profits. The casino operator said its net income fell about 27 percent in a period that ended Sept. 30.

Boyd Gaming said its net income was $6.3 million in the quarter, or 7 cents per share, compared with $8.7 million, or 10 cents a share, for the same period a year ago. Analysts polled by FactSet Research estimated, on average, the company would report earnings per share of 12 cents.

Boyd said revenue fell 6.6 percent in the quarter to $398.2 million. The company blamed the slump on reduced consumer spending, especially in Las Vegas.

"Improved results in our downtown Las Vegas, Borgata, and Midwest and South regions helped offset softness in the Las Vegas locals market," Smith said. "While visitation levels remained fairly constant, spend per visitor continues to be down significantly year over year, as consumers are still being cautious with their spending."

Shares of Boyd fell $1.90, or 17.79 percent, on the New York Stock Exchange to close at $8.78.

JP Morgan gaming analyst Joe Greff speculated that the Las Vegas economy may continue to suffer into next year, adversely impacting the company's results.

"While Boyd has done a commendable job reducing operating costs in the locals market, the headwinds from record Las Vegas unemployment and foreclosure activity, which we believe will take some time to improve, are proving to be too much as it relates to net revenue growth, something we do not see as a 2010 event," Greff told investors.


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