As expected, Boyd Gaming has punted on its purchase option for MGM Resorts International‘s half of Borgata. With the emergence of investor Leonard Green as potential co-owner — as opposed to another casino company — Boyd gets what it surely hopes will be a passive partner, one who’ll be content to collect a monthly check for half the profits … and Borgata is one of the very few Atlantic City casinos operating in the black. The company “indicated [full ownership] would have generated an insufficient return on investment,” according to a J.P. Morgan investor note, which goes on to speculate that the company may liquidate its own half of the casino-resort. (Doesn’t make sense to me, as Borgata is Boyd’s biggest earner, but OK.) Boyd’s carefully hoarded borrowing capacity can now be aimed at an acquisition of on-the-block Ameristar Casinos.
In terms of geographical diversity, as well as its locals/tourist mix of properties, Ameristar makes more sense for Boyd than for anyone else. That’s not to say that Harrah’s Entertainment won’t get into the Ameristar derby. Under Gary Loveman, its governing philosophy might be characterized as “more is more” (hence four casinos in Atlantic City), whether bondholders like it or not. An Ameristar buyout would create numerous redundancies within both Harrah’s and Penn National Gaming, but that’s not the sort of concern that would preclude either of those particular companies from getting into the hunt.
Ironically, just got back from there last night.
I think this was a good move by BYD. They seem pretty comfortable with their position in the market and have demonstrated very well how to operate a successful resort there. Doubling down in a declining market though would not seem to be a prudent move at this time. Investing to further diversify and/or get involved with other growth opportunities would! I also think that an Ameristar deal would make complete sense for them (minus having to deal with the dreadful Missouri Gaming Commission).
But ditch Borgata all together? I highly doubt it.
One other thought..which I also heard raised on their earnings call. It is possible that Revel may still obtain financing (and I hope it does) which would very clearly produce some real significant competition to Borgata. Again, BYD make the right move here.
Re the notion of BYD liquidating its half of Borgata (which dwarfs all other Boyd properties in cash flow; $54 million this quarter alone), Wall Street appears to be breaking out the loco weed a little early this week.