Who's Buying Ameristar?: Part 1

When Ameristar Casinos (Nasdaq: ASCA  ) founder, CEO, and controlling shareholder Craig H. Neilsen passed away last November, Ameristar shares shot up as high as 22% the following day on the possibility that the top-end regional casino operator would be up for sale. However, at the time, Ameristar noted in a press release that it was Neilsen's wish for the Craig H. Neilsen Foundation "to retain its controlling interest in Ameristar for the long term."

Ameristar then went on to spend $675 million acquiring Resorts East Chicago.

But on Monday, the Estate of Craig H. Neilsen filed an amended Schedule 13D with the SEC suggesting that the estate would be open to other possibilities, which might include a share sale or "a merger or other form of business combination or extraordinary or other negotiated transaction." In a press release commenting on the filing, current Ameristar CEO John Boushy said, "We read the filing to indicate the Estate wishes to preserve various options regarding its holdings in Ameristar stock."

So while the company continues to operate business as usual, I think the message is clear: Ameristar is available.

The first question is "Why would Ameristar sell?" I think the answer is that, despite the company's long-term goal of becoming a national casino operator, there is simply no feasible way for Ameristar to break into the Las Vegas Strip on its own -- a prerequisite for any company looking to build a national network. The fact is that most of the best developable land on the Strip is controlled by MGM Mirage (NYSE: MGM  ) , Harrah's Entertainment (NYSE: HET  ) , Boyd Gaming (NYSE: BYD  ) , and Wynn Resorts (Nasdaq: WYNN  ) .

Last year, the company whiffed on its attempt to acquire Aztar and its Tropicana Las Vegas (see "Gauging Aztar's Value"), and I believe that the New Frontier site recently sold to Elad -- along with heightened construction costs of building a new megaresort -- was simply too pricey and too risky for a company of Ameristar's size. Moreover, it's debatable whether Ameristar has the necessary expertise to build a competitive resort on the Las Vegas Strip as it is.

The better question, then, is, "Who's buying?" And as I've said before, I believe that Ameristar's key positions in the St. Louis, Chicagoland, Kansas City, Council Bluffs, Vicksburg, and Black Hawk markets make the company a prime, neatly packaged strategic acquisition target for companies such as MGM Mirage, Las Vegas Sands (NYSE: LVS  ) , Boyd Gaming, and regional rival Pinnacle Entertainment (NYSE: PNK  ) .

MGM Mirage
I've long opined that Ameristar fits MGM Mirage like a glove. Now some might say that MGM Mirage is too preoccupied with things such as global expansion to be interested in a regional casino operator like Ameristar, but they would be missing the key points.

The first is that the Las Vegas Strip accounts for over 75% of MGM Mirage's annual EBITDA, which was $2.6 billion in 2006. And although adding roughly $350 million or so in normalized annual EBITDA from Ameristar barely moves the needle, it's a good start to bringing geographic diversification.

But the second point is bigger: Adding Ameristar would give MGM the pieces it needs to have a true national network in the vain of Harrah's -- only better. The key is that, with the exception of Chicagoland, there's zero overlap between MGM and Ameristar. And even in Chicagoland, MGM's Grand Victoria in Illinois and Ameristar East Chicago in Indiana aren't really direct competitors.

We only need to look at Harrah's to see the value of a national network. MGM would be able to scoot customers from Ameristar's regional properties to its destination resorts in Las Vegas, Tunica, the Mississippi Gulf Coast, and Atlantic City, while giving Ameristar a place to scoot its customers to. Such a relationship would improve value at every point in the network.

Check out "Who's Buying Ameristar?: Part 2."

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