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The Gaming Industry Daily Report for 5/29/07
Alan R. Woinski, Editor
Subscription Info:  www.gamingusacorp.com - (800) 990-1902

 

The DJIA rose 14 points while Nasdaq was up 15.  Gaming stocks were mixed.  GPIC was the star of the day, up 7.4% although ARHN was up 8% in light trading.  Deutsche Bank reported on ARHN on Friday, saying the mysterious private group renewed their option to buy their LV land parcel on the Wet-n-Wild site and has to cough up a few million soon to keep that option.  Our sister publication, the Gaming Industry Weekly Report, recently covered how the LV Strip is being taken over by newbies to the gaming industry and this weekend the LV Review Journal reported on the same thing.   Investors should not be throwing caution to the wind as this brings a lot of new risk to the game.   MGAM was up 6.6% and hit a new 52 week high as did CHDN and PENN.  PACT was down 5.8%.

 

Majestic Research reported that according to their research, Boyd Gaming’s 2nd quarter overall net revenue in tracking in line with street estimates while Harrah’s is tracking ahead of estimates and Penn National is slightly below consensus and management guidance.  PENN’s Hollywood Tunica and Baton Rouge properties are said to be the reason for the lower revenue so far in the quarter.

 

MGM Mirage announced the formation of MGM Mirage Hospitality LLC, a new corporate subsidiary principally focused on extending the company’s hotel brands and developing new luxury hotel brand concepts for destinations in the U.S. and abroad.  MGM said the new unit will initially work with recently announced joint venture partners Mubadala Development Company of Abu Dhabi and Diaoyutai State Guesthouse of Beijing to explore hospitality business opportunities in various international markets.  The MGM joint venture with the Mashantucket Pequot Tribal Nation (Foxwoods) will also be run under the newly formed subsidiary.  Gamal Aziz, president and COO of MGM Grand Las Vegas, was named to lead the new subsidiary as president and CEO of MGM Mirage Hospitality, LLC.   The reason for the rally in the stock on this news, even though expected, is because analysts gave a range of different reasons for the subsidiary, besides the obvious.  Some analysts said that this could be what runs the management contracts MGM could get if they sell or spin off some of their assets and others said this unit could be spun off in the future as a separately traded public company.  MGM was up $2.85 today.

 

MGM also announced Friday they hired investment bank UBS and law firm Weil, Gotshal & Manges LLP to assist their independent committee in considering the proposal by Tracinda Corp.

 

Multimedia Games announced they intend to initiate a modified Dutch auction self-tender to purchase up to $25 million of its common stock at a range of $12.25 to $13.50 per share.  This would have them purchase nearly 2 million shares at the midpoint of that range or 7% of the shares outstanding.  MGAM’s independent directors, CEO and CFO, who own 12.2% of the outstanding shares, indicated they do not intend to tender shares in the self-tender.   MGAM said that this represents the conclusion of MGAM’s board of directors review of prospective opportunities to enhance shareholder value with Bear Stearns serving as the company advisor.  As you all know, we think Dutch Auction tenders are the greatest way to enhance shareholder value near term.  Usually what happens is that you only get a small portion of your shares tendered so we see no reason not to tender if you have a profit as long as your brokerage house does not charge you a fee.  We also suspect that the stock price will be pushed up to the upper end of the range by the time the tender is completed.  In most cases, the stock retreats after the tender, as was the case in self-tenders from MGM, IGT and DDE in the past, before moving higher.  That usually gives you an opportunity to get the shares back at a lower price and then taking advantage of a higher price in the stock as EPS improves and analysts raise estimates.    We would suggest you wait until the last minute to tender though so you don’t become like one of the very few who can say they tendered shares of MGM to Kirk Kerkorian at 30% off.

 

Gaming Partners International announced they received an order for approximately 1.6 billion B&G chips from Las Vegas Sands for its Venetian Macau Resort Hotel.  GPIC said these chips will rank among the highest security chips ever made by them including exclusive security features such as high security holograms, UV pigments, Laser Lock infrared pigments and see through inserts.

 

Friday had a dip in all Macau related gaming stocks thanks to the rumors of a decision by the government to tighten travel restrictions to Macau and Hong Kong, allegedly to stock government officials from going to Macau too much.  It probably would have been easier to just change the Visa rules for them but that is too easy.  Most believe the government will just have this on a temporary basis with analysts saying so far there has been no impact.  Below is our coverage of this story in our sister publication - The Daily Lodging Report - Asia Pacific.

 

 

Deutsche Bank reported that revenues at StarWorld surpassed those at City Clubs for the first time in April in Macau.  With margins at StarWorld 3x those at City Clubs, DB feels the market has overlooked this critical inflection point and that DB’s 2007 EBITDA estimates are 15% above the Street.   DB feels new management is making the company much more competitive and their analysis shows the stock trading at a 40% discount to U.S. peers.  Their Hong Kong office initiated coverage with a Buy.

 

Melco PBL signed a service agreement to operate the Cotai Strip Studio City development.   This will allow New Cotai Entertainment to have a casino at the development as they will use the gaming license from MPEL.  From MPEL, this is a great deal as they get management fees without having to put up any development money.  The project is located adjacent to LVS’ site 3 and across the street from sites 7 & 8.

 

The Financial Times reported a member of Japan’s Liberal Democratic Party as saying they are drafting legislation to allow casinos in the country, with passage on target for the end of the next Diet session, June 2008.  If approval is reached, there could be 10 licenses issued over time with 3 initially.

 

Illinois Governor Blagojevich gave the indication that he will allow more casinos to fund the health care plan and education.  The deadline is this Thursday and multiple gaming expansion bills are on the table.  Considering the strange year we have been having, it would be quite fitting to see Blago get this bill passed and would probably provide a more near term revenue for suppliers and existing casinos in the near future.  We still believe that if the big plan gets passed it will not be positive for existing casinos in the long term but it could be years before they are affected.  

 

Penn National Gaming asked state regulators to lift a mandate to sell their Empress Casino by June 30, 2008.  PENN is making the case again that the Illinois market is too volatile to make a sale as legislators make plans to expand gaming, ban smoking and enact other laws that can affect casino profits. Actually if the big legislative plan would get passed, PENN wouldn’t be considered to have too much market share then.

 

PENN has attracted the interest of UNITE HERE as the union is pushing shareholders to recommend voting against the two company sponsored stock compensation proposals and withhold votes on the re-election of directors at PENN.   The union, who is not doing this out of the goodness of their heart, said Institutional Shareholder Services recommended voting against the proposals.  Considering how well PENN shareholders have done, even in this volatile casino stock year, UNITE HERE may be barking up the wrong tree. 

 

Pinnacle Entertainment announced they intend to offer $350 million in aggregate principal amount of senior subordinated notes due 2015 in a private offering.  The net proceeds will be used to repay all outstanding term loans under its credit agreement, for general corporate purposes and to fund its expansion, construction and development projects.

 

Winning Edge International announced that they received a letter of intent from Betbrokers plc of the UK to acquire all their operating assets for $6.5 million in Betbrokers stock.   The WNED board approved the LOI and pending financing to retire existing debt, has directed management to complete due diligence and a definitive purchase agreement to present to WNED shareholders.  It is amazing that WNED never has a problem announcing a letter of intent but seems to have problems announcing news that things did not work out.   There was no press release last Tuesday to announce the termination of the merger agreement between WNED and ProGames Network but two days later there was a press release for the Betbrokers deal.  Considering the decline in the stock since the Betbrokers announcement, investors are either not believing this deal is going to happen or that the market cap of the company is a lot more than $1.37 million (quoted from Capital IQ) on a fully diluted basis.

 

Greek betting technology company OPAP rejected the submission by Scientific Games for its IT and terminals tender.  Thomson Financial News reported that OPAP’s Evaluation Committee will advise management that the SGMS tender should be rejected but will grade the other competing proposals from GTECH and Intralot.

 

James Packer’s new Crown Gaming spinoff from PBL is negotiating to become the casino partner of Australia’s Capital Play consortium, one of four groups battling for the franchise to operate horse racing at Belmont, Aqueduct and Saratoga tracks in NY.  We’ll save Packer a lot of grief and money by telling him that Capital Play’s bidding is already too high to ever make money on these tracks even if they all would be allowed VLTs, at least not with the percentage the tracks are allowed to keep from the state.