Betting on gambling

As Los Angeles-based Colony Capital launches a bid to acquire casino operator Station Casinos, the gambling play is becoming a more attractive bet to private equity real estate firms. By Aaron Lovell.

This weekend, gaming company Station Casinos, which owns 12 Las Vegas-area casinos, received a buyout offer from its management and Los Angeles-based private equity real estate firm Colony Capital worth around $4.7 billion (€3.5 billion).

Despite the perceived risks to casino investing, the gaming sector could be heating up as real estate investment firms increasingly look to operating businesses for better returns.

Station executives and siblings Frank Fertitta, chairman, and Lorenzo Fertitta, president, are working with Colony to offer $82 per share for the company, a 19 percent premium to its closing price on Friday. According to a statement released by Station, the company received the proposal on Saturday and has convened a special committee to consider the offer.

Colony, which has invested in high-profile hotel and pub chains, is no stranger to the gambling business, having made its name with investments like US-focused RIH Casino Resorts, mid-cap gaming company Harvey’s Casino Resorts and destination specialist Kerzner International, owner of Caribbean resort Atlantis and the Mohegan Sun casino in Connecticut.

Last year, the firm acquired the Las Vegas Hilton, along with four additional US casinos. Overseas, the firm made an investment in Groupe Lucien Barriere, the largest casino operator in Europe.  

Long considered to be risky investments—not to mention a nightmare with it comes to gaming licenses—casinos are finding themselves the target of increased interest from buyout firms. Earlier this year, Harrah’s Entertainment, the biggest casino company in the world, received a $15.5 billion takeover offer from private equity firms Apollo Management and Texas Pacific Group.

Bloomberg estimates that there have been more than $26 billion in proposed gaming deals in 2006, more interest than the previous five years combined.

In August of last year, Los Angeles-based investment firm Oaktree Capital Management acquired an ownership interest in Cannery Casino Resorts, another local casino operating targeting Las Vegas-area residents. Cannery operates the Cannery Casino & Hotel and the Rampart Casino.

“Based on the company’s management and strong operating history, [Oaktree] believe this investment is well-placed to achieve long-term growth,” said Chris Brothers, a managing partner at Oaktree, said at the time of the deal.

Investment bank Morgan Stanley has also been busy in the sector, reportedly acquiring a $74 million piece of casino-ready property in Atlantic City, New Jersey, as well as a $120 million chunk of Trump Entertainment Resorts.

“There’s been a change in the nature of the investors in the gaming industry,” Cezar Froelich, a Chicago lawyer who works with casino investors, told the Wall Street Journal this week. “All of a sudden you have more substantial institutional investors, everything from private equity to hedge funds to investment banks.”