Full House Resorts rejects buyout offer, says it ‘lacks credibility’

October 23, 2018 6:14 PM
  • Howard Stutz, CDC Gaming Reports
October 23, 2018 6:14 PM
  • Howard Stutz, CDC Gaming Reports

Full House Resorts rejected a $132.5 million buyout offer from an Illinois-based investment fund Tuesday, saying the proposal “undervalued” the company.

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In a letter to Z Capital Partners CEO James Zenni – the company that owns casino operator Affinity Gaming – Full House Chairman Brad Tirpak and CEO Dan Lee said the offer of $1.79 per share – 35 percent below the company’s closing price on Friday – “reflects a stark and fundamental disconnect from our board’s understanding of the company’s value, as well as that of third-party investors and analysts.”

Roth Capital Partners gaming analyst David Bain had said previously Full House was worth between $3.80 and $4.50 per share. In a note to investors Tuesday before Full House announced the rejection, Bain said the offer was too low.

“We believe the offer lacks credibility and is somewhat irregular,” he said.

Z Capital proposed to buy out Full House, which has five casinos in four states, and combine its operations with Affinity, which has 11 casinos in four states. In the letter, Tirpak and Lee said the combination would present “significant execution risks” in the two states – Nevada and Colorado – where the companies both operate casinos.

The letter also revealed that Full House officials met with a Z Capital representative in September to discuss the company acquiring several Affinity casinos.

The two casino companies are both based in Nevada.

“Our purpose was to express potential interest in acquiring certain of Affinity Gaming’s assets,” the letter stated. “We remain interested in doing that.”

Full House’s board and management own 17 percent of the company’s stock. Shares in Full House closed at $2.76 Tuesday, up 4.15 percent or 11 cents in trading on the Nasdaq after news of the rejection of Z Capital’s offer was announced.

“Our board has unanimously determined that the potential transaction referenced in your letter is not in the best interests of Full House Resorts and its stockholders,” the letter stated.

Affinity operates in Nevada, Colorado, Missouri and Iowa. Full House’s casinos are in Nevada, Mississippi, Indiana and Colorado.

Full House is currently in the process of expanding its Bronco Billy’s casino in Cripple Creek, Colorado, and recently made an offer to build a racetrack, casino, luxury hotel, and golf course complex near Clovis, New Mexico. The company is also exploring opportunities in Washington State.

Affinity named former Tropicana Entertainment CEO Tony Rodio as its new chief executive last week.

Lee, a former CFO for Mirage Resorts in the 1990s, led a group of shareholders in taking control of Full House in 2015. In Nevada, the company operates Stockman’s in Fallon and manages the Hyatt Regency in Lake Tahoe. The company also owns the Rising Star in Indiana and the Silver Slipper on the Mississippi Gulf Coast.

Zenni’s Z Capital took control of Affinity after a long effort to buy out the hedge funds that controlled the casino operator. Z Capital currently has more than $2.3 billion of regulatory assets under management.

Affinity has five casinos in Nevada, notably the three Primm resorts some 40 miles from Las Vegas at the California state line and the Silver Sevens just east of the Las Vegas Strip.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.