Full House Resorts Announces It Is for Sale amidst Shareholder Dissent
The ownership group for the Rising Star Casino Resort announced on Wednesday that the company is for sale. The parent company of the Rising Star is the Las Vegas-based Full House Resorts.
Upon news of the announcement, Full House Resorts shares gained in price. The shares closed at $1.33, which is a 6-cent and a 4.9% increase. Industry insiders have known that Full House has struggled in recent times, due to over $66 million in debt.
$66.8 Million in Debt
Anyone who purchases the company will need to assume that $66.8 million in debt. The market capitalization, defined as the full value of all outstanding shares, is $25.1 million. Therefore, anyone who buys Full House Resorts might end up investing over $90 million in the purchase.
A press release from the company this past week stated, “The board of directors has determined that pursuing a sale of the the company is the best course of action to maximize stockholder value.”
Shareholder Takeover Attempt
Full House has lost half of its value in 2014. That prompted one group of shareholders to criticize the board of directors openly. That group tried to force the hand of the board by calling for a special meeting to determine the composition of the board.
Had that move proven successful, a certain number of those key shareholders would have sat on the board and gained control of the company. The dissident group was unsuccessful in the short term, but they have forced the hand of the board. The dissident are led by Daniel Lee, the former CEO of Pinnacle Entertainment. Pinnacle Entertainment is the parent company of Belterra Park in Anderson Township, as well as the Belterra Casino Resort in Florence, Indiana. Full House Resorts’ board of directors has called for the dissident group to become active in the sell process, though company executives have declined to change the makeup of the board.
Rising Star Is Top Property
Among the company’s assets, Rising Star Casino Resort is the best. Rising Star made almost half of the company’s revenues last year. Full House made $144.7 million in revenues in 2013. Full House owns another casino in Mississippi. It owns a third casino in Nevada, while managing a fourth in Nevada, as well.
Rising Star Casino’s Troubles
Despite Rising Star’s contribution to the revenue stream, the past year has seen the casino face a steady decline. In an increasingly competitive Cincinnati gaming market, Rising Star now controls only 7% of the gaming revenues in the area.
Full House has lost $14.1 million on $130 million in revenues over the past 12 months. Such a loss cannot go on forever. Daniel Lee’s group blames the company’s debt structure, based on overspending practices in an attempt to buy properties.
Daniel Lee Criticisms
Lee has criticized the executive staff for a spending spree which collected the massive debt the company faces. That spending spree included an attempt to add a second Mississippi casino–a deal which ultimately fell through.
In response, Full House Resorts has attacked Daniel Lee in the press. A company spokesman said that Lee only stayed 8 months with the Palms Resort Casino, while his departure from Pinnacle was “disruptive”. Full House also said Lee and his group have a bad track record in building shareholder value in the companies they have controlled in the past.
Full House Resorts’ Financial Issues
Though Full House Resorts is a smaller casino company, that does not necessarily mean struggles. Often, companies which seek to expand too fast end up taking on too much debt. When an economic downturn or other unforeseen financial setback happens, the company might hold too much debt for the revenue stream it has. That appears to have happened with Full House Resorts, now owes more in debt than half of a year’s revenues.
The same has happened in the past with much larger companies. At present, Caesars Entertainment is the largest single owner of American casinos. Despite having assets strewn about North America, Caesars Entertainment faces crushing debt in the range of $23 billion. Most of that debt was assumed when the current ownership group had a takeover just prior to the 2008 real estate market and stock market crash. Suddenly, Caesars Entertainment face an entirely different market, while it assumed as much as $30 billion in debt. While Full House Resorts’ financial chaos is on a much smaller scale, the parallels are stark.
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