Yes, I'd like $100 in roulette chips, but please hold the tartar sauce.
I spend more time than I'd like to admit scanning financial news stories. It's rendered me somewhat desensitized to any unusual headlines. The following one, though, which arrived this morning courtesy of the Associated Press, immediately caught my attention -- "Landry's (NYSE:LNY) Buying Golden Nugget Casino." Certainly, the corporate world has its share of seemingly incongruous partnerships. Like Marriott (NYSE:MAR), for example, which not only operates the five-star Ritz-Carlton hotels, but also likes to dabble in coal-based synthetic fuel in its spare time. Still, this pairing strikes me as a little odd.
Landry's, the Houston-based operator of restaurant concepts such as Joe's Crab Shack, Rainforest Cafe, Chart House, and the signature Landry's Seafood, is purchasing the downtown Las Vegas Golden Nugget casino. It almost sounds like the punchline to a great joke -- what do a rainforest, a crab, and a slot machine all have in common?
According to the terms of the deal, Landry's will acquire the Golden Nugget for around $295 million ($140 million cash and the assumption of $155 million in debt). The price tag represents about five times the $57 million that Landry's has earned over the past four quarters. In fact, the company will be shelling out more money for this deal than it has earned in its entire 11-year history.
Make no mistake: Gaming in Las Vegas is on an incredible winning streak. Look no further than the recent quarterly results from MGM Mirage (NYSE:MGG) or Harrah's Entertainment (NYSE:HET). The Golden Nugget, furthermore, is a fine property -- arguably the pride of Fremont Street, with the largest number of rooms and a more upscale (and recently renovated) casino. It is typically my first stop whenever I visit downtown Las Vegas.
The gaming boom in Las Vegas has sent the value of the property soaring. MGM Mirage sold the Golden Nugget, a former Steve Wynn property, to its current owners, the Poster Group (owned by the same people who founded Travelscape.com), less than two years ago for $215 million (including a sister casino in Laughlin, which has already been sold).
Landry's certainly has a reputation for making forays beyond its core restaurant business. The company owns several hotels, aquariums in Houston and Denver, and the Kemah Boardwalk, an entertainment/retail/dining complex in Galveston, Texas. Nevertheless, I can't help thinking that this purchase might have been a better fit for a regional gaming company -- which would know a thing or two about how to operate a casino -- looking to get a foothold in the Las Vegas market.
The Poster Group's unloading of the Golden Nugget so quickly leads me to believe either that performance at the historic casino was less than the company had anticipated or that Landry's offer was too sweet to ignore. However, none of that is to say that Landry's still can't cash in handsomely on the purchase. The news alone has sent the stock racing higher by double digits this morning. Either way, last month's warning that same-store sales are sliding lower has now been lost in the shuffle.
Fool contributor Nathan Slaughter is eagerly awaiting his next trip to Las Vegas in May, but he owns none of the companies mentioned.
