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Boyd Opts Not to Acquire Entire Borgata

Posted on October 28th, 2010

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Boyd Gaming Corp., the current operator and owner of half of Borgata Hotel Casino & Spa, has decided to not exercise its option to buy the rest of the property. Boyd, a gambling industry bigwig based in Las Vegas, has the first rights to acquire the half of Borgata that it does not own. The other half used to be owned by MGM Resorts International. Despite the casino’s good income standing and its reputation as the most profitable gambling facility of Atlantic City, Boyd opted to stay with only half of the Borgata. The company then stated that it would rather device a plan to decrease its debt and look for other opportunities for development.

In a statement the company released at the start of the week, it claimed, “Given other opportunities and our current focus on deleveraging our balance sheet, the current offer would not provide a sufficient return on investment for our shareholders. Despite this decision, we are confident in the future of Borgata.” So far, an offer totaling $259 million has been passed to MGM for its share in Borgata. The interested party has not been publicly named, although several reliable sources have divulged that it is the Leonard Green & Partners LP, a buyout company based in Los Angeles.

Leonard Green started operations in 1989 and is currently managing assets amounting to more or less $9 billion. The company has stakes in companies such as the drugstore chain Rite Aid, luxury store chain Neiman Marcus, Whole Foods Market, fitness company Equinox and the Sports Authority, according to the website of the company. This is not actually the first time Leonard Green attempted to venture into the gambling industry. The company tried to buy a controlling stake in the M Resort casino hotel of Las Vegas. It partnered with the Marnell family, which founded the resort. It was Penn National Gaming Inc. that eventually won the bidding. Penn National got M Resort for the price of $230.5 million.

The executive vice president of Spectrum Gaming Group, Harvey Perkins, commented, “Leonard Green tends to focus on investing in well-established businesses that produce superior returns in their operating markets.” So far, no comment has been received from the spokesman for Leonard Green. On the side of MGM, spokesman Alan Feldman would not confirm if Leonard Green is indeed the buyer of the MGM shares. He did confirm though, that MGM will continue with completing the sale. Feldman also refused to comment on the possibility that more bidders may be interested to make an offer now to MGM now that Boyd is out of the picture.

Meanwhile, a gaming analyst for Majestic Research, Matthew Jacob, said that with these developments, there is a huge possibility that even Boyd may give up its share in Borgata as well. Keith Smith, president and chief executive officer of Boyd’s did not really add fuel to that speculation during a conference call on Monday. He said, “There haven’t been any conversations beyond the right of first refusal.” A former gaming executive, Dennis Gomes, also put in his two cents on the issue. Gomes is currently in the process of acquiring Resorts Atlantic City to the tune of $35 million. He is also at a loss as to why Boyd would refuse the chance to have Borgata all to itself for $250 million. Market figures reveal that Borgata is the Atlantic City leader with annual gross operating profits amounting to $200 million. This amount is currently evenly split between Boyd and MGM.

Gomes commented, “If you pay $250 million and get $100 million a year you’re talking about a 40 percent return on your money. I’ve never heard of anything that good. There must be something I don’t understand, because no one would ever get that kind of return. There must be details we don’t know about.” One reason that may have spoiled the deal for Boyd is the $820.8 million debt of Borgata. Should Boyd have acquired Borgata, they would have had to assume the entire debt. Other analysts were not really taken aback by the decision of Boyd, saying that competition from Pennsylvania casinos and the weak economy could not have spelled a wise decision for Boyd acquiring the entire
Borgata.