Wednesday, May 24, 2006

The biggest casino operators have achieved their status not by building new
resorts but through mergers and acquisitions. Harrah's Entertainment
acquired the Rio, Horseshoe Gaming Holdings, Caesars Entertainment and the
Imperial Palace on its way to becoming the industry's biggest player. Kirk
Kerkorian's MGM Grand swallowed Primadonna Resorts, Mirage Resorts and
Mandalay Resort Group on its way to becoming the Strip's kingpin, MGM
Mirage. That record suggests that it would be foolish to believe that the
industry titans will rely only on their announced or expected plans to build
giant casino resorts on the Strip and overseas to fuel their growth.

Recently announced deals involving a couple of Las Vegas properties, the
Hard Rock Hotel (to boutique hotelier Morgans) and Tropicana parent Aztar
Corp. (to Westin owner Columbia Sussex Corp.), are doing more than
confirming the rapidly escalating value of Las Vegas gaming real estate.

The sales make clear just how savvy the earlier Harrah's and MGM purchases
were. Most folks applauded MGM's Mirage and Mandalay deals, but many
industry insiders questioned the price Harrah's paid for Horseshoe and
Caesars.

I wasn't one of the detractors - I thought Harrah's CEO Gary Loveman made
shrewd deals, acquiring strong brands and relatively scarce gaming licenses,
cementing its top-dog status in the central region of the country while
establishing itself as a solid No. 2 on the Strip.

With the continuing red-hot performance of the Las Vegas casino business and
rapidly escalating prices for Strip-area casino real estate, there's
absolutely no doubt now that the Harrah's Caesars deal was a coup - a deal
that would cost billions more if attempted today.

What current buying opportunities might Harrah's and MGM Mirage be
considering? I'm privy to no inside information, but I think a couple of
companies might make sweet acquisition targets for the top two players. The
prices would be high given the industry's current strength, but the rewards
would be great.

Target No. 1: Station Casinos. Harrah's Loveman made a play for both Station
and Coast Casinos (eventually gobbled up by Boyd Gaming Corp.) a couple of
years ago but couldn't agree on a price. For Loveman, these truly were prize
catches that got away. Station's stock price went far higher, and the
company maintains its stranglehold on the Las Vegas locals market.

Loveman has made no secret of his desire to capture a chunk of the lucrative
Las Vegas locals market, and with Station's arsenal of properties and
inventory of casino-entitled sites primed for development, the fit seems
obvious.

The question, of course, centers on price, and you can bet Station would
sell for a tasty premium. Station owner, the Fertitta family, has already
proved its willingness - a deal to sell to a Texas-based real estate
investment trust collapsed in 1998.

Station would be a perfect fit for Harrah's, but, if Loveman passes again,
rival MGM could pounce.

Target No. 2: Boyd Gaming Corp. Boyd Chairman Bill Boyd has never expressed
an interest in selling, but the company has a couple of prize assets MGM
Mirage in particular would covet. MGM shares ownership of the Borgata resort
Boyd operates in Atlantic City, Boyd's solid second-place standing in the
Las Vegas locals market and its Stardust site.

MGM has in the past shown an appetite to acquire companies that were MGM
partners in casinos, buying New York-New York partner Primadonna and Monte
Carlo partner Mandalay. Borgata is unquestionably Atlantic City's best
property.

Harrah's central U.S. dominance would overlap with Boyd's riverboat
presence, and Harrah's already has a giant stake in the Atlantic City
market. But the lure of Boyd's Las Vegas locals and Strip assets could prove
irresistible.

Target No. 3: Wynn Resorts. Steve Wynn tells me he's not interested in
selling, but his company's two prized assets might make for an offer he
couldn't turn down. The Desert Inn parcel has space for a handful of resorts
beyond Wynn Las Vegas and Encore.

And Wynn's Macau casino concession is undeniably worth billions, especially
to Harrah's, which has been shut out of the lucrative enclave, although is
believed to be angling for a Macau venture with Wynn.

Kerkorian timed his last Wynn buyout when the market was soft. He'd get no
such price advantage this time, but the multibillionaire has already
demonstrated a willingness to spend big to get what he wants.