Las Vegas – Want to buy a piece of the gaming industry, a few shares to add to your portfolio?
Well, forget about Harrah’s Entertainment and Station Casinos. They’re now in private hands. You won’t be able to claim a slice of the Stratosphere and two Arizona Charlie’s casinos, either. They’ve been purchased by a private equity fund. You can buy as much as you want of MGM Mirage, Wynn Resorts and Las Vegas Sands, but still not control them. Each has a single majority owner.
Of the big Las Vegas gaming companies, Boyd Gaming Corp. is the only one mostly owned by public shareholders.
And nobody’s sure for how much longer.
For months, investors have speculated about whether Boyd would join the throng of American companies that have exited the public stock markets.
That option might appear tempting for a company that is building a USD 5 billion resort complex on the Strip – Echelon – that isn’t embraced by Wall Street.
Deutsche Bank stock analyst Bill Lerner puts it this way: “The market doesn’t seem to be rewarding the company for Echelon.“
By some estimates, Echelon would need to generate operating cash flow (a key measure of pretax profit, before certain expenses) of at least USD 500 million a year to make the project worthwhile for Boyd – a tall order given that no resort has yet to achieve that bench mark, and more than 40,000 hotel and condo units are due to open on the Strip in the next several years.
And compared with the bigger MGM Mirage, which has a majority investor in billionaire deal maker Kirk Kerkorian plus a USD 5 billion cash infusion from Dubai World, Boyd will be financing Echelon with a greater percentage of its earnings.
Instead of going private, some experts speculated, the company might bring in additional partners to invest in Echelon besides Morgans Hotel Group, which is building two boutique hotels as part of the hotel, convention and entertainment complex.
Boyd executives have tried to distance themselves from such rumors.
“We are comfortable with our capital structure right now,“ spokesman Rob Stillwell said, declining further comment.
As a private company, the thinking goes, Boyd would be able to spend or build more freely, without the risk of hurting its stock price if it were to miss quarterly profit benchmarks.
There are many reasons why the company won’t likely go private anytime soon, starting with the company’s executive chairman and former chief executive, Bill Boyd.
Boyd joined his casino operator father, Sam Boyd, in founding the Boyd Group, which began with Henderson’s Eldorado casino in the 1960s and grew to include the California and Sam’s Town casinos in the 1970s and expanded into the riverboat gambling business in the 1990s. With the purchase of Coast Casinos in 2004, Boyd became the second-largest operator of locals casinos in Las Vegas.
In January, President Keith Smith became only the second chief executive in Boyd’s 14-year history as a public company.
The USD 4 billion enterprise is still, in many ways, a family-run business with the culture of a much smaller company. Bill Boyd, like his father before him, is still the public face of the company and an approachable executive familiar to many rank-and-file workers.
The Boyd family owns about a third of the company’s stock – too significant a chunk for outsiders to wrest control of the business.
And the Boyds want it that way, analysts say.
“There’s no indication to me that this is a company that wants to go private,“ said Jefferies & Co. stock analyst Larry Klatzkin.
Going private isn’t necessarily a ticket to freedom. Private companies trade one set of owners – public shareholders – for private investors who end up with a say in how a company is run. Longtime executives who remain with the company may choose to take their businesses private because they believe they can extract greater profits by making decisions that hurt profits in the short term but reap longer-term rewards. Or they believe that a private equity firm could lend help with financing or restructuring, making their company more efficient or profitable than they could on their own.
Before the collapse of the subprime mortgage market, when financing was easy to come by, private equity firms were snapping up just about every easy target, Klatzkin said. But now that the market has soured and the easy targets have already been bought, private equity firms have halted their buying binge, he said.