Las Vegas locals king Station Casinos (NYSE: STN) announced Monday that it has agreed to be taken private in a management-led buyout amounting to $5.4 billion, or $8.8 billion including debt. At $90 per share, it's an upgrade from the original $82-per-share offer the group made in early December.
The buyout group, Fertitta Colony Partners (FCP), includes Frank and Lorenzo Fertitta, as well as Colony Capital Acquisitions, an affiliate of Colony Capital. Frank Fertitta is CEO and chairman of Station Casinos, and his brother Lorenzo is president and vice chairman.
With Station only the latest casino group to go private, there's one obvious question: Who's next?
Whichever company gets taken off the table, the buyer must be able to realize value from the purchase. Both Station Casinos and Harrah's Entertainment (NYSE: HET), which agreed to be taken private for $27.8 billion including debt in December, offer market-leading properties with reliable cash flows and a lock on prime developable real estate in Las Vegas.
MGM Mirage (NYSE: MGM) -- which, even after Project CityCenter, will still have more than 200 acres of undeveloped or underdeveloped land on the Las Vegas Strip -- exhibits similar qualities. However, the company is looking for ways to capitalize on that land value itself, and it has no apparent intention of slowing down development, which I think precludes a sale. Boyd Gaming (NYSE: BYD) would be another possibility; in addition to its Echelon Place development on the Strip, its developable Las Vegas opportunities include key positions in a downtown Las Vegas market with long-term potential.
Who else does that leave? I don't see Pinnacle Entertainment (NYSE: PNK) as a private equity target. Pinnacle is primarily a development company at this point, and its value reflects its development projects, which include two casinos in St. Louis; a $2 billion project in Atlantic City, N.J.; a second casino project in Lake Charles, La.; and a potential $250 million project in Baton Rouge, La. But aside from L'Auberge du Lac in Lake Charles, the company has little that anybody else would really want, and it lacks the wealth of Las Vegas real estate that the other companies have. I think it would be difficult for a private equity firm to find value there.
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selection Ameristar Casinos (Nasdaq: ASCA) also lacks the key Las Vegas real estate, but its high-quality regional assets would make it a strategic takeover target. Should Ameristar be a seller, not a buyer, it would be a perfect fit for MGM Mirage, and a good fit for a company like Boyd Gaming or Las Vegas Sands (NYSE: LVS) as well. Ameristar would give each of those companies a top-notch regional brand. It would lend MGM Mirage a better version of Harrah's network, upgrade the quality of Boyd Gaming's portfolio while improving its network (with no overlap), and give Las Vegas Sands a regional footprint.
Personally, I'd be cautious about buying casino companies strictly as takeover targets. As an owner, I wouldn't mind holding onto a company like Ameristar or MGM Mirage, even at the currently heightened valuations. But as a buyer, I'd still prefer to maintain price discipline and look for values, rather than bet on a buyout.
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Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool's disclosure policy knows when to hold 'em.
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