On Tuesday, we laid out the acquisition strategy for Motley Fool Hidden Gems recommendation Ameristar Casinos (NASDAQ:ASCA). As we've noted before, Ameristar is looking primarily for existing EBITDA-generating casinos in regional markets. In addition, the company is looking to buy a location, rather than the casino itself -- the worse shape the casino is in, the better (the cheaper the price tag), as the company is probably just going to build over the casino anyway. Moreover, we're assuming that MGM Mirage (NYSE:MGM), Pinnacle Entertainment (NYSE:PNK), Penn National Gaming (NASDAQ:PENN), and Boyd Gaming (NYSE:BYD) are not selling.

Let's examine some of the potential acquisition targets. Please note that these are my own opinions and not necessarily the opinions of Ameristar's management.

Sheraton Tunica (Harrah's)
Why Ameristar wants it:
Sheraton Tunica, the Horseshoe Tunica, and MGM's Gold Strike resort combine on 77 acres of land to form the Casino Center cluster. An Ameristar-quality property in the Sheraton's place would give the cluster three of the top four properties in the Tunica market, and would improve the drawing power of the cluster as Tunica's version of downtown Las Vegas. Meanwhile, a top property in Tunica would fill a major gap in Ameristar's regional network.

Secondly, the Horseshoe has a lock on high-end gambling in Tunica. This makes the Sheraton property and its array of penny slots next door a perfect complement.

Why Ameristar can compete: At this point, the product in Tunica is 99% gambling. Ameristar would bring an expansive environment with a wealth of non-gaming amenities, such as the Amerisports Bar and the Bottleneck Blues Bar.

In addition, Ameristar could take the Sheraton's position as a complement to the Horseshoe and blow it out of the water with a facility that would be at least double the Sheraton's size. Having the most penny slots in a high-quality environment is the value proposition that has served Ameristar well thus far.

Why Harrah's would sell it: Because it's a win-win situation for both companies. With Harrah's (NYSE:HET) being taken private by Apollo Management and Texas Pacific Group, Harrah's priority has shifted from hyperdevelopment to paying down its massive debt load. Selling to Ameristar would improve the value of the Horseshoe, as well as the Tunica gaming market in general.

Bally's Tunica (Resorts)
Why Ameristar wants it:
Space and location. Resorts International's Bally's Tunica is a bottomless-tier casino and hotel situated on 136 acres of land. That land would give Ameristar the flexibility to do a large-scale project that could include a movie theater (the first in the market) or bowling alley, or other non-gaming amenities that are standard in Las Vegas but have yet to find their way to Tunica.

Why Ameristar can compete: Not only does the land offer the opportunity to build a large-scale project, but the location also gives Ameristar a chance to hijack gamblers on their way to the Gold Strike/Horseshoe/Sheraton cluster: You have to drive past the entrance to the Bally's property to get to the cluster. A casino the size of either Ameristar St. Charles or Ameristar Kansas City (more than 3,000 slots and roughly 100 table games) would be the biggest in the market.

Why Resorts would sell it: Because it's Bally's Tunica. Ameristar could pay a premium multiple to cash flow for it with eyes on a project the size of which Resorts has no intention of building. Plus, Resorts also has the former Harrah's property, which they've done a very nice job with at the other end of the market.

Grand Casino/Casino Magic Biloxi (Harrah's)
Harrah's reopened the Grand Casino Biloxi in August -- a little less than a year after the property's gaming barge was wiped out by Hurricane Katrina. What once was a sizeable 134,000 square-foot casino on a gaming barge is now a fraction of its former self, relegated to a land-based facility with a mere 27,610 square feet of gaming space and about 500 renovated hotel rooms. Harrah's also picked up Pinnacle's former Casino Magic site next door, which had also been wiped out by Katrina.

Grand Casino/Casino Magic Biloxi: Then and Now

Gaming Sq. Footage


Table Games

Hotel Rooms

Grand Casino/Casino Magic Pre-Katrina*





Grand Casino Biloxi (2007)






Why Ameristar wants it: The Grand Casino/Casino Magic site totals about 47 acres at Point Cadet, which will one day be the Mississippi Gulf Coast's version of the Atlantic City Boardwalk. The site is about a stone's throw away from the site that Ameristar had previously explored building on in 2005, and is adjacent to the Isle of Capri (NASDAQ:ISLE) Biloxi, which has been redone surprisingly well. The area is located at the base of the Highway 90 bridge (also wiped out by Katrina), which could return to service by November of this year.

A Biloxi property would give Ameristar another destination to add to its regional network, while meeting the company's desire to do more business in a jurisdiction with a stable regulatory environment and favorable tax rates (Mississippi).

Why Ameristar can compete: Ameristar would both fill the market's need for a high-end locals property, while also serving well as a destination resort. Think along the lines of a beachfront version of Station Casinos' (NYSE:STN) Red Rock Station. The standard non-gaming amenities Ameristar could bring -- the Amerisports Bar, Bottleneck Blues Bar, a movie theater, etc. -- would be an upgrade over anything else in the market outside of MGM's Beau Rivage. Ameristar could also use the beachfront to build a boardwalk attraction.

Why Harrah's would sell it: Harrah's/Apollo/TPG would sell the property simply because it doesn't appear they are going to develop it themselves. The casino is less than one-third of its former size and not equipped to operate at its potential. Rather than sit on the site, Harrah's could sell the property at a premium to its current cash-generating ability, then use the proceeds to pay down debt. Besides, Harrah's can always return to the market at a later date, when the region is more fully developed.

Casino Aztar Evansville (Columbia Sussex)
Why Ameristar wants it
: It's an awfully neat solution, really. When Ameristar gets around to replacing its riverboat at Council Bluffs, it could send the old riverboat to Evansville, rather than scrapping it. Ameristar's riverboat would be an instant upgrade in quality over the current Casino Aztar Evansville boat.

Though its location isn't exactly conducive to destination traffic, Casino Aztar Evansville has the benefit of being a local-area monopoly -- the closest competitor is 70 miles away. Meanwhile, the Evansville-area residents are predominantly St. Louis Cardinals fans; controlling this market would give Ameristar first dibs on locals whenever they visit St. Louis for Cardinals games. That could be a key factor, where Pinnacle's downtown St. Louis casino -- which opens later this year -- will be located just a few blocks away from Busch Stadium.

Why Columbia would sell it: Because Columbia has a price. Columbia's prime targets in the Aztar acquisition were the Tropicana Las Vegas and Tropicana Atlantic City. Somehow, I don't think Columbia CEO Bill Yung particularly gives a lick about Evansville. I mean, seriously -- Evansville?

In addition, Ameristar could offer to take Casino Aztar Caruthersville (a trucker stop in Missouri about five miles off I-55, somewhere between St. Louis and Memphis) off Columbia's hands, and then float the Aztar Evansville boat down to Caruthersville to instantly upgrade that property as well. This makes extra sense given that Columbia is required to sell the Caruthersville property; the company had previously been denied licensure by the Missouri Gaming Commission in 2005, during an attempt to acquire the President Casino in downtown St. Louis.

Casino Aztar Evansville















Other alternatives
Horseshoe Hammond (Harrah's).
The best-positioned player on the Indiana side of the Chicagoland market has untapped potential: The property still operates on what amounts to an oversized multiple-deck yacht, and it has no hotel. Harrah's was planning to replace it with what was called the MOAB (mother of all boats) prior to the company' sale. However, the property makes so much money -- and from an irreplaceable location -- that there may not be any interest in selling it.

Resorts East Chicago (Resorts). The next-best player on the Indiana side of the Chicagoland market also operates on a multideck yacht. But as above, Resorts may have no interest in selling the property, which generates $300 million in annual gaming revenue.

Trump. On Monday, Trump Entertainment Resorts (NASDAQ:TRMP) announced that it has asked Merrill Lynch for advice regarding strategic options, which may portend a possible sale. Ameristar would very much be interested in possibly one or all three of Trump's Atlantic City properties.

Ameristar is a Hidden Gems pick.

Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool has a disclosure policy.