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They burned the Monte Carlo ... and may get away with it
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They burned the Monte Carlo ... and may get away with it
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You really have to hand it to Station Casinos CEO Frank Fertitta III. This dude has more lives than a cat. Every time you think his luck has run out, he slips the noose yet again.
So it was Tuesday. FF3 proved that his time at the gym hasn't been wasted, as he applied a one-two punch to Boyd Gaming. While studiously ignoring Boyd's $950 million offer for most of Station, FF3 was persuading his creditors to give him a forbearance that will extend until Tax Day. When it comes to sweet-talking bondholders, this guy is sheer Sheherazade ... especially when you consider that Boyd's offer made the Fertitta family's proposed $244 million cash infusion look like chump change.
Forbearance in hand, FF3 then unveiled a "Don't call us, we'll call you" letter to Boyd. Ker-POW! Fertitta must have been feeling his oats, as he dissed Boyd's offer on the grounds it was "non-specific" and "highly conditional." This was just a tad disingenuous when you consider that Boyd didn't have information that would enable it to make a more specific offer -- because Station wouldn't provide it.
Unsheathing his claws, FF3 then took a swipe at Boyd's soft underbelly (i.e., Echelon), cattily making note of "Boyd’s potential inability to perform due to its own financial position." Meow! Considering that Fertitta's own company is justthisclose to filing bankruptcy itself -- far, far closer than Boyd -- you have seen an instance of the pot calling the kettle black that's so brazen it may never be surpassed.
In fairness to FF3, it's not like he wasn't provoked. Boyd proclaimed its offer far and wide, doing everything short of hiring a plane to sky-write it over Station HQ. Boyd was talking past FF3 and straight to the bondholders, in effect saying, "You're a nice lad, Frank, but you're irrelevant now." So Tuesday was Payback Day.
Fertitta is like the Teflon CEO. No matter how many EBITDA projections Station misses or how outrageous its executive compensation packages are, nothing sticks to him. Not only that, he and brother Lorenzo were able to structure a deal whereby Station insiders only controlled 24% of the equity -- but 60% of the board. Then again, from a strategic and operational standpoint, would you rather put Station in the driver's seat -- or Colony Capital? It's Hobson's Choice but Station wins, hands down.
There's been one immutable bottom line to all Fertitta clan responses to Station's liquidity crisis. As Liz Benston described it:
"The plan would improve Station’s financial outlook and keep the Fertittas at the helm.
"But critics question whether Chief Executive Frank Fertitta III and his brother, co-owner Lorenzo Fertitta, are worth the debts they want bondholders to forgive."
You might call that the $5 Billion Question.
Boyd's suffered a major setback in today's developments. If $950 million isn't enough to persuade bondholders not to heed FF3's siren song and lend an ear to Boyd, what is? Their response to the Fertitta's take-it-or-leave-it March 2 deadline was obviously "leave it" ... but they willing to keep the line open for another six weeks. Boyd's made what looked for all the world like a game-changing gambit and yet the chess pieces have scarcely moved.
While there's just about everything to like about Boyd as a company there's almost nothing to like about its attempted hostile takeover. Try and try, I can't make sense of it. For starters, it would cannibalize at least half of the $2 billion earmarked for Echelon, which raises questions about Boyd's commitment to the project -- or how it would flip the site with a half-built megaresort sitting atop it.
Then there's the problem (if you're Boyd) that your offer doesn't take the Fertittas out of the picture, it simply whittles them down a bit. They'd still have Red Rock Resort and Stations Palace, Boulder and Sunset. That is, unless Boyd is willing to shoulder the elephant-on-its-back burden of the $2.5 billion note with which that casino quartet is encumbered. Could Boyd withstand such an added debt load?
And when you've already put almost half your $2 billion on the table, just for openers, why even talk about buying out the Greenspun family's stake in Green Valley Ranch and Aliante Station, plus a gaggle of grind joints? Why not just stick to Plan A, which from all appearances was to make a wide, quiet detour around the Greenspun Problem and revisit it somewhere down the road? (Unless the 'Spuns are willing to sell out for cheap, in which case Station wakes up to find itself in bed with its archrival. Oh, the awkwardness!)
Which brings us to the even bigger problem that is the Las Vegas locals market. Yes, it may recover sooner than the Strip. But for now it's inelastic, cannibalized and overbuilt. One of the hidden benefits of the Boyd proposal is that would (presumably) alleviate the company of the need to build a North Las Vegas casino.
Trouble is, do you need Aliante Station and Santa Fe Station and Texas Station and the original Fiesta up there? And if you don't, who'll alleviate you of that kind of surplus? By absording even part of Station's portfolio, not only would Boyd be competing with itself sometimes within eyeshot but even right across the street. Also negated is one of Boyd's strengths: the regional balance that has, unlike Vegas-centric Station, shielded it from the recent vagaries of the Sin City marketplace.
Conversely, if you're not going to take the Fertittas off the board altogether, why settle for a half measure? Why leave them with four major casinos and a passel of developable real estate, including the prospective site of long-in-abeyance Durango Station? You'd have a bloodied adversary on the field, still upright, well armed and spoiling for revenge.
$950 million isn't going to buy even partial satisfaction for Boyd unless Station can still be forced into bankruptcy court. That much is now clear. Nor is $2 billion enough to purchase a definitive solution to the problem. For the sake of its shareholders, Boyd needs to rethink its pursuit of Station before it finds itself playing Capt. Ahab to FF3's Moby Dick. Boyd pulled back from the verge once, with Echelon. It can do it again.