Boyd Gaming after Station assets

7 August 2009

LAS VEGAS, Nevada –- Boyd Gaming Corp. is "actively engaged" in discussions to acquire some of the assets of Station Casinos, which filed for Chapter 11 bankruptcy last week, Boyd Chief Executive Officer and President Keith Smith said Wednesday.

Boyd in February offered to acquire several of Station Casinos' properties for $950 million. Station Casinos rejected Boyd's offer, but the topic was a major focus of its earnings call.

"This filing does not change the fact we remain extremely interested in pursuing a transaction that makes sense for us," Smith said during the earnings call in which the company announced that its second-quarter profit dropped 41 percent as revenue fell because of the recession.

Boyd could play a "key role" in helping Station Casinos emerge from bankruptcy quickly, Smith said.

"As the bankruptcy process continues, and the creditors consider their options, they know Boyd Gaming remains serious and committed in being an active participant," Smith said. "They also know we have the ability and financial resources to swiftly execute a transaction, and we have more than 35 years in the Las Vegas market. Both of those factors will allow us to provide a smooth transition for Station's employees and customers."

Station Casinos spokeswoman Lori Nelson said Wednesday it is the company's "intent to remain a stand-alone operation and to not sell any of our assets."

Steven Kent, a gaming analyst with Goldman Sachs Global Investment Research, said in a note to investors that Smith's comments were not aimed at Boyd's owners.

"We believe this is more to let bondholders of Station know that they still would be interested at the right price rather than a message to Boyd equity holders," Kent said.

Smith declined to comment on specific conversations Boyd has had with creditors, or say if the company has talked directly to Station's owners, the Fertitta family and Las Vegas-based real estate firm Colony Capital.

Barbara Cappaert, a bond analyst with KDP Investment Advisors, said in a note to investors that Boyd's willingness to "wait out the bankruptcy" to acquire some of Station's assets could "prove to be a long-term credit positive" for Boyd.

Smith said the process could take time.

"Bankruptcy can be a lengthy and complex process," he said. "The constraints, expenses and distractions associated with this process can take an unfortunate toll on a company, its employees, vendors and its customers."

Smith told the Review-Journal after the conference call that Boyd, the No. 2 locals gaming company behind Station Casinos, hasn't noticed any boost in its own business because of Station's bankruptcy filing.

However, he said, "We certainly want to be there and provide an alternative for those customers and accept them into our Coast brand and accept them into our Coast properties."

Smith said Boyd is also continuing to evaluate its stalled Echelon project. Smith said the company has no interest in selling the project and the 87-acre site on Las Vegas Boulevard next to Circus Circus.

Boyd stopped construction on the $4.8 billion project in August 2008 and continues "to view our site on the Strip as a long-term strategic asset for the company," Smith said.

In its earnings report, Boyd said it posted a $12.8 million profit in the second quarter ended June 30, a 41 percent decrease from the $21.7 million net income posted the same quarter a year ago.

The result translated into earnings of 15 cents per share in the quarter, down from 25 cents per share a year ago.

Excluding preopening expenses and other items, profit was $10.4 million, or 12 cents per share.

Analysts polled by FactSet Research and Reuters estimated, on average, the company would reach earnings of 12 cents per share.

Boyd's revenues slipped 8.2 percent in the quarter, to $422.9 million from $460.8 million last year. Six-month revenues slipped 8 percent, to $857.8 million from $931.9 million.

Boyd's revenue decline was driven by a 16 percent decrease in revenue for the company's Las Vegas locals properties, including Sam's Town, The Orleans, Suncoast, Gold Coast, Eldorado and Jokers Wild.

Second-quarter revenues for those properties were $166.1 million, down from $197.9 million a year ago. Six-month revenues dropped 16.9 percent, to $336.2 million from $404.4 million.

In downtown Las Vegas, where the company owns the California, Fremont and Main Street Station, revenues slipped 8 percent to $57.6 million for the quarter, and 6 percent to $116.2 million for the year.

The company's revenues for its six casinos in Louisiana, Mississippi, Indiana and Illinois ran flat for the quarter and are up slightly for the year.

Company cash flow, which is reported as earnings before interest, taxes, depreciation and amortization, fell 11.7 percent to $105.6 million for the quarter, and is down 13 percent to $215.2 million this year.

Robert LaFleur of Susquehanna Financial Group said in a note to investors that the company's cash flow numbers missed expectations.

"Overall, results were below our estimates, reflecting the many challenges Boyd faces just about everywhere in its portfolio," he wrote.

Boyd officials blamed the results on reduced consumer spending and continued pressure on room rates, although they said they remain positive about the locals market's future.

"We have tremendous confidence in the viability of the Las Vegas locals market, and believe growth will resume as economic conditions improve," Smith said.

The company believes the downturn, the worst the nation has seen since the 1930s, has reached bottom, too.

"The precipitous declines that began in the second half of 2008 are behind us," Smith said. "However, while the business trends may have stabilized, we're not currently seeing any indications that point to a meaningful recovery in the short term."

The company also shied away from discussing New Jersey gaming regulators' plans to reopen the licensing hearing for MGM Mirage, its joint-venture partner in the Borgata.

Shares of Boyd closed at $9.65 per share, down 29 cents, or 2.92 percent, on the New York Stock Exchange.


Related Links
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