Pinnacle Entertainment buying Sands casino for $250 million
By LINDA A. JOHNSON, AP Business Writer
Published: Tuesday, September 5, 2006
TRENTON, N.J. (AP) - Pinnacle Entertainment Inc. will buy the Sands Casino Hotel and a neighboring site that abuts the center of the Atlantic City Boardwalk for about $250 million, the companies said Tuesday.

Under the deal, Pinnacle will pay an additional $20 million for other nearby real estate and for some tax-related benefits to buy the properties from financier Carl Icahn, the majority owner, and others. Icahn took control of the Sands in 2000.

The 26-year-old Sands, the smallest of Atlantic City's 12 casinos, would be closed within a couple of months, razed and then replaced with a new, much larger casino hotel, under the terms of the agreement.

Las Vegas-based Pinnacle Entertainment, which operates casinos in Nevada, Louisiana, Indiana, the Bahamas and Argentina, would acquire 18 contiguous acres, including a stretch along the resort city's famed Boardwalk.

"After spending many months reviewing various projects for the property, it became patently clear that a shutdown of The Sands was necessary and inevitable to make room for a great new casino," Icahn said in a statement.

In May, a subsidiary of Icahn's American Real Estate Partners, which indirectly owns 58 percent of the Sands casino, bought the 8-acre site of the former Traymore Hotel. That property separated the Sands, one of the first casinos to open in Atlantic City, from the Boardwalk and had long limited the Sands' ability to attract foot traffic or expand.
About the same time, Pinnacle lost a two-month bidding war for Aztar Corp., operator of Atlantic City's Tropicana Casino and Resort. Aztar backed out of its deal with Pinnacle, paid it $78 million in termination fees and expenses, and instead entered a $2.75 billion agreement to merge with Wimar Tahoe Corp.

Rumors have since circulated that Icahn was in talks to sell the Sands and Traymore properties and that Pinnacle, still wanting a foothold in the Atlantic City gambling market, was the most likely buyer.

Industry analyst Adam Steinberg of Morgan Joseph said the result is that Icahn made a great short-term trade in getting the Traymore property for just $61 million, or barely half the per-acre price Pinnacle is now paying.

"Pinnacle's got a better long-term investment," Steinberg said.

"This is a first time in Atlantic City where you've seen somebody buy a property, (with plans to) tear it down and rebuild it," as happens regularly in Las Vegas, he added. "It's the next phase in terms of Atlantic City trying to reinvent itself."

The Borgata casino, which opened in 2003 with upscale restaurants and a spa and this summer opened a $200 million expansion, shows high-end properties can work well in Atlantic City, Steinberg said.

"Now you're starting to see people really invest in that market," which will benefit when direct train service from New York City starts late next year, he said.

Pinnacle spokeswoman Pauline Yoshihashi said her company has not yet prepared designs for the new casino, but said it will be substantially bigger.

"I think you're looking at 2010 and beyond" before it opens, she said.

Pinnacle had filed paperwork for temporary authorization to run the Tropicana, had it acquired Aztar. That will be converted into an application for a regular casino license, followed by an investigation of Pinnacle that could take more than a year, New Jersey Casino Control Commission spokesman Daniel Hennigan said.

Daniel R. Lee, chairman and chief executive officer of Pinnacle, said in a statement that the future casino "will be a key component in our plan to build a national network of gaming properties."

Pinnacle and Sands said the casino will be closed within 70 days. Employees will get 60 days' notice of the expected date and will receive severance packages and help finding new jobs, including an opportunity to apply for work at any of the casinos operated by the two companies.

George Toth, the Sands president, said he notified nearly 500 of the casino's 2,100 employees during a meeting Tuesday morning.

There were "a lot of emotions in the room," Toth said. "The employees, of course, had heard rumors forever" of a possible sale.

He said Sands employees on average have about 10 years of service there, including about 120 who started the day it opened. Currently, the Sands has about 80,000 square feet of gaming space and 620 hotel rooms.

The agreement gives Icahn's companies 45 days to review any unsolicited bids from other companies, but includes a $10 million breakup fee to Pinnacle.

In trading on the New York Stock Exchange, Pinnacle shares rose 20 cents to $25.98.