Gaming companies merge; plan growth

Hotel & Motel Management, May 3, 2004 by Elaine Yetzer Simon

Las Vegas -- The opportunity for growth is a powerful motivator, and that possibility is behind the $1.3-billion acquisition of Coast Casinos by Boyd Gaming.

Coast will become a wholly owned subsidiary of Boyd and will be positioned as a separate operating unit run by current Coast management. Coast shareholders will receive about $495 million in cash, and Boyd will issue about 19.4 million shares to Coast shareholders. Boyd will assume about $460 million of Coast debt. The stock consideration is valued at about $325 million.

"We, for a long time, have looked strategically at where we were, where we are and where we want to go," said Donald D. Snyder, president of Boyd Gaming. "The one place we hadn't focused as much time was where we started-Las Vegas. As we were doing things outside the area, other companies have built up very good business here.

"When you haven't invested as much in the market, you're limited as to how you can get back in the game. You can have an aggressive program of your own or acquire someone who is established. We decided if there was the magic of a merger here, we would pursue it."

The merger joins Boyd Gaming's 7,300 guestrooms and Coast's 2,759 guestrooms for a total of 10,059. Boyd owns and operates 13 properties in Nevada, New Jersey, Mississippi, Illinois, Indiana and Louisiana. Coast owns and operates four Las Vegas hotel casinos.

The two companies have another 1,200 rooms under construction. South Coast is a $350-million development with 662 guestrooms south of Las Vegas. The project is expected to be completed by the end of 2005. The Orleans Las Vegas Hotel Casino Resort Spa has a 461-room expansion under way, and Boyd Gaming is adding 203 guest-rooms to the Delta Downs Racetrack & Casino in Louisiana, which is expected to be completed by the end of the year.

The relationship between the two companies helped close the deal quickly, according to Snyder.

"There's always been a good relationship with Coast, a mutual respect," he said. "We never really had any serious conversations until about three weeks before we announced the deal. It came together quickly because of that long relationship and the mutual respect. Also, we wanted some of the same things.

"Michael [Gaughan, chairman and c.e.o. of Coast] wanted to stay involved, and we needed him to be."

"This is the right transaction at the right time for Coast and our employees," Gaughan said in a news release. "I have great respect for Boyd Gaming and its management team. My team and I are delighted to be joining Boyd Gaming, and as I am about to become a significant shareholder of the combined company, I am committed to the future of Boyd and its exciting growth opportunities."

The joining of the two companies is expected to be a smooth transition.

"Reaction has been incredibly positive," Snyder said. "There are a lot of similarities between the two companies, including their roots as family-owned companies. The values of the companies are the same: tremendous integrity, a strong focus on customer service, creating the type of environment customers like and a focus on employees.

"The financial community understands those things and has responded tremendously. We're getting very positive feedback from employees within our company and those at Coast."

The merged company plans to focus on five areas/demographics for growth: the Las Vegas local market; the Las Vegas Strip area; Atlantic City, N.J.; the central region (the Midwest and South); and downtown Las Vegas.

"We've been working on the basic strategic plan for the company for eight years," Snyder said. "It continues to drive us. It works extremely well and is consistent."

The companies are going through the regulatory-approval process and arranging financing. The deal is expected to be completed by the middle of the year.

"We don't anticipate any significant changes at all," Snyder said. "That's one of the nice things about this transaction. We've known for awhile that we needed to expand our management base, and to merge with a company that brings the kind of management depth this one has is great."

esimon@advanstar.com