Tuesday, February 10, 2004

Boyd Gaming Corp., owner of Las Vegas' Stardust casino and others, agreed to purchase Coast Casinos Inc. for about $820 million to gain a larger share of the growing gambling market of Las Vegas residents.

Boyd Gaming adds
Vegas casinos

The $820 million deal will have
no effect on its Hawaii operations,
according to the company

Boyd Gaming Corp., an owner of casinos including the Stardust, agreed to purchase Coast Casinos Inc. for about $820 million to gain a larger share of the growing number of gamblers who live in Las Vegas.

Boyd operates Vacations Hawaii, one of the islands' largest package tour companies to Las Vegas.

Coast shareholders will get about $495 million in cash, and Boyd will issue about 19.4 million of its shares valued at about $325 million, Boyd said in a statement. Boyd also will assume $460 million of Coast debt. Both Las Vegas-based companies trace their roots to the start of modern casino gambling in the city just after World War II.

Boyd will acquire Coast's three Las Vegas casinos for hometown gamblers and the Barbary Coast casino, which markets to tourists on the Las Vegas Strip. The city of half a million people adds 6,500 residents a month, according to Deutsche Bank AG. Boyd said the purchase will create a company with $2 billion in annual revenue and immediately add to earnings per share.

"The local market is growing phenomenally," said Lawrence Klatzkin, an analyst with Jefferies & Co. in New York, who rates Boyd "hold" and doesn't own any of the shares.

Shares of Boyd closed up $1.19 to $20.40 on the New York Stock Exchange. They have gained nearly 80 percent in the past year.

Boyd spokesman Rob Stillwell said the merger won't have any impact on the operations of Boyd's Vacations Hawaii subsidiary, which transports more than 100,000 passengers a year to the parent company's downtown casinos -- the California Hotel & Casino, the Fremont Hotel & Casino and the Main Street Station Hotel --as well as to the Stardust on the Strip.

"Nothing is going to change with the merger of the two companies," Stillwell said. "There are some economies of scale that will benefit the new combined company but, more importantly, it provides a visible growth strategy for the combined company and a dominant position in the Las Vegas market."

Vacations Hawaii, which operates Hawaii-Las Vegas flights daily except Tuesday, saw its revenues decline last quarter by 6.6 percent to $11.4 million from $12.2 million. For the year, revenues slipped 2.1 percent to $47 million from $48 million.

Boyd said increased air charter and jet fuel costs in the company's Hawaiian air charter operations were the primary causes for a 13.2 percent decline in its downtown properties' 2003 earnings before taxes, interest, depreciation and amortization. EBITDA fell to $40.5 million from $46.7 million a year ago.

In September 2002, Boyd switched its Hawaii-Las Vegas charter carrier to Tulsa, Okla.-based Omni Air International from Hawaiian Airlines. Hawaiian said at the time that the contract was worth about $30 million in annual revenue but had not been profitable.

Coast Casinos, led by Michael Gaughan, also owns the Gold Coast, Orleans and Suncoast casinos in Las Vegas. The company considered a public offering in 2002 to take advantage of the rise in casino stocks and growth of local casinos. As of July 1, Nevada was the fastest-growing U.S. state for the 17th straight year, according to the U.S. Census Bureau.

Gaughan's father, Jackie, bought his first casino in 1946. Boyd Chairman William Boyd's father, Sam, arrived in Las Vegas in 1941 and in 1952 invested $10,000 for a stake in the Sahara Hotel.

"Michael and I have known each other for nearly 40 years," William Boyd said on a conference call with investors and analysts. "Our fathers shared a similar love for Las Vegas."

Michael Gaughan will receive 15 million of the new 19.4 million Boyd shares and will become the second- largest shareholder, after William Boyd.

Standard & Poor's placed Boyd's BB corporate credit rating on review. The rating firm said it won't reduce the rating if Boyd completes the purchase as planned.

The purchase is the latest expansion for Boyd, which said last week it will build a 500,000-square-foot addition to the Borgata casino in Atlantic City and last month agreed to buy a casino in Shreveport, La., for $180 million. The Borgata, which it jointly owns with MGM Mirage, was its first Atlantic City casino.

Boyd will generate half of its earnings before interest, taxes, depreciation and amortization from Nevada after the purchase, compared with 30 percent in 2003. The company also owns casinos in markets including Indiana, Illinois and Mississippi. The company's Sam's Town casinos also cater to local residents.

Boyd has said it plans to redevelop the Stardust casino in Las Vegas, which opened in 1958. Coast will begin construction on the South Coast Hotel and Casino later this year and open the property in 2005.

Bloomberg News and Star-Bulletin reporter Dave Segal contributed to this report.


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