Monday, February 23, 2009

Boyd Buying Station?!?

I don't understand. Boyd's stock is at $3.40 a share. They've halted construction on Echelon. And now they've sent a "non-binding preliminary indication of interest" indicating they want to buy a whole bunch of Station Casinos properties for $950 million in cash? The letter says Boyd has $2 billion in liquidity.

It's times like these I'm glad I'm not on the Vegas Gang podcast. I'm not qualified.


Anonymous said...

Speaking as a former Vegas Gang-ster, don't feel bad -- you're not alone: This offer is a real head-scratcher, for a whole bunch of reasons. My best guess is that Boyd sees the Fertittas as being between a rock (bankruptcy) and a hard place (creditors) and decided this was the moment to cut a cash-desperate Station down to size, maybe even take it out of the picture altogether.

David McKee

Anonymous said...

It's always good when someone is willing to invest capital. It shows they believe there is value. The bondholders should be happy to have a cash offer rather just reduced debt owed by the equity sponsors that defaulted the first time.

mike_ch said...

Fine with me as long as the Fertittas hit the skids as part of the deal.

Anonymous said...

What's there to figure out? Boyd had the financing for Echelon, the problem was their partners didn't. That's what shut it down and they have a half a bil investment that isn't producing any income. They also have a $2 bil line of credit left over without a home. Their offer of $950 mil for Aliante, Sante Fe, Green Valley Ranch, Texas Station, and both Fiestas gives a better return to bondholders than the Station's very meager offer. It's also cash up front, no line, no waiting, no further risk.

Aliante cost a little over $650 mil to build, so for just under $300 mil more Boyd gets that and 5 other income generating properties. At that small debt load it has room to play through the rough economy until it recovers, much like Ruffin with TI. If Boyd can make it happen, sounds like a smart play to me. Buy low, sell high, duh!

Anonymous said...

The only problem with your line of argument, Anon., is that not only is Echelon producing no revenue -- as you so correctly note -- but Boyd will have to cannibalize the line of credit it was planning to use to finish Echelon. And if Echelon is toast (as stock analyst Joseph Greff believes), it will be even harder to flip the site what with so much unfinished construction sitting atop it.

Also, buying more casinos in Vegas dilutes one of Boyd's strengths: its diversification across multiple regional markets. (Station's problems were exacerbated by its extreme concentration upon Las Vegas.) So this isn't a no-brainer.

David McKee

GregoryZephyr said...

Business is first and foremost, return on capital. And for new investments you need some relative assurance of what your return is going to be. So, does Boyd put a billion or two into finishing Echelon and then "hope" it's a big success when it opens in a year or two? Or, do they abandon Echelon for the near term and instead deploy the capital to an existing business with known and verifiable revenue. At a firesale price, picking up revenue generating assets instead of funding a more strategic dream is far more sensible.

Anonymous said...

Mr. McKee, They don't have the debt of building these properties and aren't adding any new additional competition to thin the slices of the pie. It doesn't matter if Boyd has all their eggs in one basket in this case. They're getting these eggs for next to nothing, and that can boost their bottom line.

Take Aliante @ $650 mil + to build. Doing an even split of the Boyd offer, they pick it up for $158.33 mil. 75% off. That's a much easier nut, even in a down market.

They're enticing bondholders by offering nickles up front to Station's possible pennies down the road. For that offer they may get a look at the books, and if the numbers aren't there, they can walk. It's nonbinding. Wow, and what do they walk with there? A rare sneak peek at a direct competitors strengths and weaknesses from their own spreadsheets. BONUS!

Right now Boyd is operating in a soft market with the added drag of a half bil debt service producing nothing, and a $2 bil line also producing nothing. This market there's no way they could get the added cash to finish Echelon and stupid to finish it with today's slump, so they're dead in the water. If the Station numbers add up and the deal is done, they could not only increase their profits and juice their bottom line and stock price, while they build equity and add 6 properties as collateral for future loans. Maybe to finish an Echelon project. If not, someone will come along and either get a half bil head start, or start over, the land still holds value and will appreciate again. I think you may have noticed over the years it's not unusual to implode an entire property in Vegas, half of one isn't an issue. So this play IS a no brainer.