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Fertitta May Be Buying In Las Vegas


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Houston-based restaurant firm may ante up for jump into gambling By Tom Fowler, Houston Chronicle

Knight Ridder/Tribune Business News

Dec. 23--A booming casino industry, a lack of attractive restaurant merger targets and $400 million in cash has Landry's Restaurants prowling the Las Vegas Strip in search of its next acquisition.

The company hasn't formally announced plans to get into gaming, but Landry's Chief Executive Officer Tilman Fertitta has made no secret of his interest.

At a recent analyst conference in New York, he lamented the shortage of good merger deals in the restaurant industry. And in a recent conference call, he said the company would consider buying a casino "... but it would have to be the right deal."

With $400 million raised just this week through a debt offering, the company is now well-armed to go hunting for that right deal.

There are many individual casinos on the market, the result of a merger spree among the nation's biggest gaming companies. There are also a handful of small, publicly traded gaming companies that would fit in Landry's price range.

One of those companies saw its stock price surge Wednesday in reaction to takeover speculation. Riviera Holdings, owner of the Riviera Hotel & Casino on the Las Vegas Strip and the Black Hawk Casino in Colorado, saw its stock climb $6.35 to close at $41.80.

Riviera and Landry's officials would not comment on the takeover speculation.

Whether or not Riviera is a target for a Landry's takeover, it may be the kind of investment Landry's and Fertitta could grow to love.

For starters, the company owns one of the classic brands on the Strip, the Riviera Hotel & Casino. Built in the 1950s, the Riviera has 110,000 square feet of casino space, 2,100 guest rooms, a half-dozen restaurants and 160,000 square feet of convention space.

Riviera may also be a good real estate deal. It is on 26 acres on the north end of the Strip near Circus-Circus and the new Wynn Las Vegas development.

Riviera also appears to be in Landry's price range. It reported earnings before interest, tax, depreciation and amortization of $31.5 million in 2003 and may approach $40 million of 2004. With casinos selling for as much as nine times this gauge of earnings, known as EBITDA, the price tag could be about $360 million.

Riviera also presents an operational challenge, something Fertitta does not shy away from. Riviera has been a consistent money loser, with casino revenues flat and income from food, beverage and rooms down. The loss for the first nine months of 2004 was $619,000 on revenue of $153.9 million. It's an improvement from the year before, but is still a lot of red ink.

Even if Landry's does find a willing seller in Las Vegas or elsewhere, it could take many months for a deal to close. The application and approval process for a gaming license, which Landry's would need to own a casino, can take six months or more.

Since 2000, Landry's has nearly tripled in size. Much of the growth came through aggressive acquisitions, which netted the Rainforest Cafe, Chart House restaurants, Muer Restaurants and Saltgrass Steak House.

While the company has shown an impressive revenue record, it has its detractors. Some analysts point out that free cash flow, a key measure of operational efficiency, has been negative eight of the 10 past quarters.

The company says much of this is the result of the cost of funding the company's growth and the fact that, unlike other restaurant companies, Landry's tends to own its own real estate -- about $500 million worth at last count.

A casino acquisition would take Landry's merging tendencies in a new direction.

Gaming has become a top attraction for investors in the past year, fueled in large part by industry mergers, according to Todd Eilers, a gaming research analyst with Roth Capital Partners.

MGM Mirage announced a $4.9 billion merger with Mandalay Resort Group this year and Harrah's Entertainment is buying Caesars Entertainment for $5.7 billion. Speculation over who will be next has driven up stock prices for small and midsize gaming companies.

Las Vegas land prices are also on the rise, thanks to new developments.

Casinos have stronger earnings growth, higher returns on invested capital and better free cash flow than most other businesses, including restaurants, Eilers said.

Fertitta said it best himself in the recent conference call: "We've looked at the fact that you can go and acquire a casino that produces say $17 million in EBITDA, and it's the same as what it costs to build 50 Joe's Crab Shacks."

Other possible acquisition targets include the individual casinos being spun out of the big mergers, or one of about a half-dozen smaller companies that have casino management contracts or own a few properties. In addition to Riviera, this list includes Lakes Entertainment, Monarch Casino and Resort, the Sands Regent and Century Casinos.

Landry's has connections to Lakes through board member Kenneth Brimmer. He and his wife once worked for the casino company that became Lakes Entertainment. Lakes has a 64 percent stake in the televised World Poker Tournament and has contracts to run four Indian tribe casinos, including one in Eagle Pass in South Texas.

-----To see more of the Houston Chronicle, or to subscribe to the newspaper, go to http://www.HoustonChronicle.com

© 2004, Houston Chronicle. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. LNY, RIV, WYNN, MGG, CZR, MBG, LACO,

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With the exception of Atlantic City and Las Vegas I've been pretty disappointed with all other casinos. In the U.S., places like Chicago, Shreveport, Cincinnati, and others the "riverboats" are rarely anything more than casinos floating in a protected bathtub. The Cincinnati riverboarts (actually in Indiana) used to sail up the Ohio River because of a law that requred them to sail a certain number of times a day to keep their license. That may have been repealed since I lived there.

Even in cities like Vienna and Salzburg, the casinos aren't that great. The ones in Prague are more like holes in the wall than gambling palaces.

Everyone knows what a good glitzy casino should look like. I don't know why these other cities half-ass theirs.

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Talk is that various Houston based restaurant chains will expand along this street to accomodate Houston gamblers.

Where did you hear this interesting tidbit, Glen?

On a side note; one visit to Atlantic City (home to Trump's casino) will show you how gambling has destroyed that town. All sorts of promises were made but never kept to the citizens there. It doesn't surprise me one bit that Tilman Fertitta is looking at the gambling industry, openly now. He's always had family connections in the business and his two cousins are raking in the dough in Las Vegas now. It makes you wonder though, if Tilman Fertitta brought gambling to Galveston, would it be more like Atlantic City or Las Vegas....

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  • 1 month later...

Landry's bets $140 million on Las Vegas casino


Copyright 2005 Houston Chronicle


Check stock quotes.

Enter ticker for Landry's: LNY

Landry's Restaurants is getting into the gambling business after reaching a deal with the owners of the Las Vegas hotel-casino the Golden Nugget.

Landry's shares surged nearly 10 percent on the news.

The Golden Nugget is the biggest of 14 hotel casinos in downtown Las Vegas. The facility has 40,000 square feet of gaming and three towers containing 1,907 guest rooms.

Houston-based Landry's will pay Poster Financial Group $140 million in cash and take on $155 million in debt.

For months, rumors swirled over what Landry's intended to do with $400 million raised through a debt offering. In late December the Chronicle reported that Landry's CEO Tilman Fertitta was eyeing Las Vegas casinos. The casino industry has been booming.

At that time, Riviera Holdings, owner of the Riviera Hotel & Casino in Las Vegas and the Black Hawk Casino in Colorado, saw its stock climb over speculation that Landry's was planning a takeover.

Landry's acquisition of the Golden Nugget is expected to close within a year.

Landry's owns more than 300 restaurants, including Landry's Seafood House, Joe's Crab Shack, Rainforest Cafe and Saltgrass Steak House, as well as the Kemah Boardwalk, Downtown Aquarium and Inn at the Ballpark in Houston.

``The Golden Nugget is the premier property in downtown Las Vegas, has outstanding brand recognition across the country, and is a perfect fit for us,'' Fertitta, said in a prepared statement.

Poster Financial Group is owned by Timothy Poster and Thomas Breitling, the founders of travel Web site Travelscape.com, which was later sold to Expedia.

Poster and Breitling bought Golden Nugget properties in downtown Las Vegas and Laughlin in June 2003 for $215 million from MGM Mirage Inc. They later sold the Laughlin property to Barrick Gaming Corp. for $31 million.

Last year, the downtown property suffered from poor cash flow, a measure of a casino's profitability.

Gambling analysts said it had been underperforming because the pair had embarked on a risky strategy of luring high rollers who could expose the casino to serious losses.

Analysts said the bet didn't pay off and the casino's bottom-line took a big hit. The two owners also decided to take part in the Fox reality television show, The Casino. Created by Mark Burnett, the program turned out to be a bust and portrayed the casino in an unflattering light. The show was not renewed. Now the two are getting out at a time when casinos are being valued at record amounts.

``This sale is designed to capitalize on the tremendous demand for casino properties in Las Vegas and to enhance the ability of our company to participate in various business opportunities,'' Poster said in a news release.

Chronicle reporter Tom Fowler and the Associated Press contributed to this article.

------ On the Net:

Landry's Restaurants: http://www.landrysseafood.com/

Golden Nugget: http://www.goldennugget.com

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