Hollywood Park Inc., which has long sought a way into the full-fledged casino business, announced Wednesday a $188-million agreement to acquire Boomtown Inc., which owns Western-themed casinos in Las Vegas; Reno; Biloxi, Miss.; and a riverboat casino in New Orleans.
Analysts said the deal gets Hollywood Park into casino gambling in Nevada and the South, and it gives debt-strapped Boomtown access to much cheaper financing than it could obtain on its own.
Together, the two companies should be able to move ahead with expansion plans that Boomtown has had in mind for some time but has been unable to fund.
Under the agreement, each share of Boomtown stock would be exchanged for 0.625 of a Hollywood Park share. At Wednesday's closing price of $10.125 for Hollywood Park, the indicated value of the stock exchange is $58.5 million. Since Hollywood Park would also assume about $130 million of Boomtown's debt, the total sale price is $188 million.
Gaming analyst Jan H. Loeb of Wasserstein Perella Securities in New York said the deal should produce "tremendous cost savings" for Boomtown, whose borrowing costs are much higher than Hollywood Park's.
Analyst Jason Ader of Bear Stearns & Co. said the deal could instantly save the combined company $13 million a year--primarily in financing costs.
Besides its signature racetrack in Inglewood, Hollywood Park owns tracks in Arizona and Kansas, and a card club casino next to the track in Inglewood. It has hoped to move into full-fledged casino gambling, including slot machines, in both California and Kansas but has been hamstrung by the need to obtain legislative approvals.
With Boomtown casinos, the company is free to abandon its money-losing Kansas site if it fails to obtain the legislative go-ahead this session, said G. Michael Finnigan, Hollywood Park's chief financial officer.
Boomtown's casinos in Reno, New Orleans and Biloxi--one of the fastest-growing U.S. gambling meccas--are very profitable. The Las Vegas location, which Boomtown owns in partnership with another investor, is losing money and Boomtown could drop its ownership if the situation doesn't improve, Finnigan said.
Boomtown, in partnership with Hilton Hotels Corp., has applied for a casino license in Indiana. It also wants to expand its Reno facility, where it often turns gamblers away because the capacity of its hotel is inadequate. After the Hollywood Park merger, both projects can be pursued, analysts said.
Hollywood Park shares rose 37.5 cents to $10.125 on Nasdaq. Boomtown shares fell 50 cents to $6.25 on Nasdaq, but Boomtown's $104 million in first mortgage notes, a "junk" bond issue, shot up to a value of 97.5 cents on the dollar from 82 cents.
Both companies' stocks have been disappointing. Hollywood Park has fallen 33% since it hit a 52-week high of $15 last August. Boomtown has slid 55% since hitting its 52-week high of $13.75 nearly a year ago.