Boyd Gaming (NYSE:BYD) just became one of my favorites.
In a deal valued at $1.3 billion, Boyd announced this morning that it will acquire Michael Gaughan's privately held Coast Casinos. The move at once increases the reach and upgrades the quality of Boyd's Las Vegas operations.
Along with Station Casinos (NYSE:STN), Coast is a top operator of locals casinos in the Las Vegas market. With limited opportunities for future gaming development, Vegas is one of the fastest-growing areas in the country.
For the honor, Boyd is paying a reasonably rich 7.4 times 2004 EBITDA (earnings before interest, taxes, depreciation, and amortization) for Coast, which brings three top locals casinos in Gold Coast, Suncoast, and Orleans. Under terms of the deal, Boyd will pay $495 million in cash, issue 19.4 million shares of stock, and assume $460 million in Coast debt.
Boyd also gets Barbary Coast at center Strip -- across the street from Caesars Entertainment's (NYSE:CZR) Caesar's Palace, and a short walk from both Venetian and MGM Mirage's (NYSE:MGG) Bellagio. A soon-to-be-developed South Coast casino, slated to open south of the Strip in late 2005, tops off the deal.
All are solid additions to Boyd's locals operation in Sam's Town, and provide a more premium presence in Las Vegas than currently offered by Boyd's three downtown casinos. The merger also unites two of the oldest, most respected names in the business.
The highly coveted Coast Casinos is the second large privately held casino operator to be acquired in the past six months. In September, Harrah's (NYSE:HET) agreed to purchase Jack Binion's Horseshoe Gaming. Both Harrah's and Ameristar Casinos (NASDAQ:ASCA) were previously known to have an interest in Coast.
Following Boyd's earnings release last week, I suggested that -- with the boost from Borgata -- Boyd may be transforming from a strict value play to a more premium player along the lines of MGM Mirage and Mandalay Resort Group (NYSE:MBG). The Coast acquisition helps solidify Boyd's new position as a power play in this industry.
I still don't think the stock is particularly cheap. That said, for investors willing to pay up, the case for buying is getting stronger by the day.
Discuss Boyd's newest acquisition and your favorite locals casinos with other Fools on the Boyd's Gaming discussion board.
Jeff Hwang owns shares of Ameristar Casinos and can be reached here.
