AZTAR SIGNS BUYOUT AGREEMENT WITH COLUMBIA SUSSEX

Last Friday Phoenix-based Aztar Corp. signed a merger agreement with Kentucky-based Columbia Sussex Corp., with Columbia's buyout bid of $54 a share, all in cash. The $2.75 billion deal also stipulates that Columbia convert Aztar's company bonds and assume its $676 million in debt.

"Our agreement with Columbia provides an increased all cash premium to our shareholders and reflects Columbia's strong commitment to the transaction," Aztar Chairperson Bob Haddock said in a statement.

If the transaction doesn't close by Nov. 19, the price will increase by just under a penny per share each day. Failure to complete the deal by Feb. 19 knocks the price up to almost two cents per day.

Columbia is already looking at how to use their new investment. Company President Bill Yung III said one of the prizes of the buyout, the Tropicana Las Vegas casino on 34 acres of Strip property, is not likely to be closed soon.

"I think we'll try to use what we can and knock down what we can't use," Yung told the Las Vegas Review-Journal. "We're builders, and we have a large construction department. We have a lot of opportunities with that site." He suggested that the land had the potential to be divided into sections. "We've talked with some people already. You could see two or three franchises on the site," Yung said.

Besides the 61,000-square-foot casino and the 1,880 room Tropicana, the acquisition involves Aztar's three smaller casinos in Indiana, Missouri and Laughlin, Nev., as well as the Tropicana Atlantic City.

"I played with the numbers and we were prepared to pay whatever it was until we won," Yung said. "Aztar is getting full value for their properties, but I think we can still make money in those places."

Las Vegas-based Pinnacle Entertainment-which over two months increased its initial bid from $38 a share to $51 a share-stated that its offer will not be increased.

"After careful consideration and due diligence, Pinnacle's management and board of directors have determined not to increase Pinnacle's offer to acquire Aztar," Pinnacle Chairman Dan Lee said in a statement.

Gaming analysts supported the move. "We view this as a very positive outcome for Pinnacle and laud the company for not matching Columbia Sussex's $54 per share bid, which we view as too steep a price to pay for Aztar's assets," said CRT Capital Group gaming analyst Steve Ruggiero.

Davenport & Co. gaming analyst George Smith expressed a similar view in a note to investors. "We are relieved the company has chosen not to make another bid," said Smith. "Concern pertaining to this saga has been a material overhang on the stock. Although buying Aztar would make strategic sense, we simply believe the price has gotten too rich. Moreover, management's decision not to up the ante demonstrates financial discipline."

Pinnacle, which operates casinos in Argentina, Louisiana, Indiana and Reno, will receive $78 million from Aztar in breakup fees. But that may not end Pinnacle's bidding activity.

"Pinnacle has identified Las Vegas as a market it would like to enter," Morgan Joseph gaming analyst Adam Steinberg said in a note to investors. "We believe the company will set its sights on other locations in Las Vegas."

The Sahara Hotel & Casino on the north end of the Las Vegas Strip might be a consideration, as Lee recently toured the property, and Sahara has arranged to sell its casinos and three land parcels comprising a total of 55 acres. Steinberg said Riviera Holdings, which owns a Colorado casino and the Riviera Hotel & Casino on the Las Vegas Strip, would also likely get at least a "cursory glance" in Pinnacle's Las Vegas search.