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Gambling/General : New Investment group at Riviera

By Andrea Klein

Level: Apr 12th 2007
A high-profile private investment group, which includes the founder of Starwood hotels and a Las Vegas real estate developer, is trying for the second time this year to buy apart of the parent company that owns the Riviera. Riv Acquisition Holdings, which controls about 20 percent of Riviera Holdings Corp., offered to pay $27 a share for the best shares of the company, which controls the 52-year-old Strip property and a slot machine casino outside Denver. It sends a letter to the Riviera board of directors in which gave the company a limited time to respond to the offer. But, Riviera Chief Financial Officer Mark LeFever said the company had no comment.

The key player in the deal is the 2,070-room Riviera and its valuable 26-acre north Strip land parcel that has access both off the Strip and Paradise Road. Most analysts believe the site value is highest because it is one of the northern Strip's last available land parcels. "There are a few number of gaming sites that drive interest in and around the Strip," said Brian Gordon, a partner in Las Vegas-based financial adviser Applied Analysis. "A transaction for the Riviera and others could be a big boom in terms of price per acre."

Paul Kanavos, a managing member of New York-based Flag Luxury Properties, signed the letter to the company's board, saying the terms of the proposed deal are similar to the offer the group made in April last year, when Riv Acquisition offered $17 a share for Riviera Holdings. The cash deal is estimated at $336.4 million based on 12.46 million best shares of Riviera Holdings. In addition, the investment group was disposed to help Riviera Holdings refinance the company's $210 million in outstanding debt. The offer helped fuel a price increase in Riviera Holdings shares. The company closed at $28.10, up $2.63 or 10.33 percent in trading on the American Stock Exchange.

Kanavos said Riv Acquisition was searching alternatives that would help close the deal before receiving regulatory approval in Nevada and Colorado. He said most of the principals in Riv Acquisition have already filed licensing applications with gaming authorities in both states. In addition, Riv Acquisition includes his partner in Flag Luxury, Robert Sillerman, whose respective holdings include Ritz-Carlton resorts and the branding rights to Elvis Presley and the "American Idol" television program. Also, part of Riv Acquisition are Starwood Capital Group founder Barry Sternlicht and local real estate developer Brett Torino.

Riviera shareholders rejected the first offer of $17 a share offer by Riv Acquisition believing the proposal was too low and not reflective of current Strip land values. Three large Riviera shareholders with an estimated 19 percent of the company, D.E. Shaw & Co., a New York asset management firm; Alberta, Canada-based Triple Five Group; and Plainfield Asset Management, a hedge fund based in Greenfield, Conn., all voted against the offer.

D.E. Shaw participated in a $21 a share offer for Riviera Holdings last December with developer Bruce Eichner, but the deal failed when the 30-day negotiating period expired without the parties coming to agreement. Representatives from Shaw and Eichner, who is building the $1.8 billion Cosmopolitan hotel, casino and condominium project next to the Bellagio, did not wish to comment on the offer of Riv Acquisition.

Another Riviera shareholder, Derek Stevens of Desert Rock Enterprises, who holds a little more than 1 million shares of Riviera, said the price may seem low based on recent deals and potential Strip transactions. For example, last month, a Los Angeles-based entertainment group announced it was buying the Sahara for a value estimated between $300 million and $400 million, or between $17 million and $23 million an acre. Another, offer who took place last week, is that of a New York real estate firm who wanted to pay $1.5 billion for the New Frontier, or $40 million per acre. This proposal has failed as New Frontier owner Phil Ruffin said. He canceled a meeting with the potential New York buyer, El Ad Properties.
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