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The merger-happy casino industry is getting thin on takeover targets

It is hard to see what will be the next target, but given the high amounts of capital interested in these types of assets, other transactions could follow," Goldman Sachs analyst Steven Kent said in a research note.

Investors led by Kerzner Chairman Sol Kerzner and his son, Butch, the company's chief executive, offered to pay about $3 billion to take the Bahamas-based company private.

The deal follows news last week that Aztar Corp., owner of Tropicana casinos in Las Vegas and Atlantic City, agreed to be acquired by riverboat gambling operator Pinnacle Entertainment Inc. for about $1.45 billion.

Remaining takeover candidates include Ameristar Casinos Inc. and riverboat and dockside casino company Isle of Capri Casinos Inc., but both are majority-owned by insiders. said Jefferies & Co. analyst Larry Klatzkin.

"Once a family decides to sell, the deal can be done quickly. But if they don't want to sell, a deal won't get done," he said.

Gambling's popularity has skyrocketed in recent years along with the value of the underlying real estate, but because so many regulations limit where casino operators can expand, acquisitions have been a key growth engine.

"The obvious companies out there are gone ... Argosy and Aztar were always the two freighted to go someday," Klatzkin said, referring to riverboat casino operator Argosy Gaming Co., which was acquired in October by casino and racetrack operator Penn National Gaming Inc. for about $1.4 billion.

RISING VALUATIONS

Last year's other high-stakes deals were Harrah's Entertainment Inc.'s $6.8 billion acquisition of Caesars Entertainment and the $5 billion buyout by MGM Mirage of Mandalay Resort Group.

Kent said the Kerzner buyout, at 16.6 times estimated 2006 earnings, represents a clear premium to recent acquisitions in the gaming space which have had earnings multiples ranging from 7 to 10, with Aztar going for a multiple of 8.7.

Private buyers may be willing to pay more than public companies because of favorable financing terms and stock multiples that, in some cases, underestimate the true value of underlying real estate, Deutsche Bank analyst Marc Falcone said in a report.

Analysts also cite the January announcement that a Saudi prince and Colony Capital will pay $3.9 billion to buy luxury hotel operator Fairmont Hotels & Resorts Inc. as further evidence that consolidation and perceptions of high asset value remain themes in the gaming and lodging sector.

Kerzner and Fairmont "demonstrate the healthy appetite for international leisure real estate assets," Kent said.

The Kerzner investor group also opened up a 45-day window to solicit competing bids.

Bear Stearns analyst Joe Greff said a competing bidder -- most likely private equity or an international resort operator -- is possible, but they would have to convince the Kerzner family to stay on. "This would be challenging and complicated," he said in a report.

Other big casino operators are also controlled by insiders: MGM is majority owned by Kirk Kerkorian's Tracinda Corp., while Las Vegas Sands Corp., operator of the Venetian resort in Las Vegas, is controlled by chairman Sheldon Adelson.

Directors and executives at Wynn Resorts LLC, including Chairman and CEO Steve Wynn, own 52 percent of the company. Wynn had previously founded Mirage Resorts, which was acquired by MGM in 2000.

"Wynn wasn't a seller, but everything is for sale at a price ... dramatic changes can happen," Klatzkin said.

Other tightly controlled casino companies include Boyd Gaming Inc., in which insiders, including Chairman and CEO William Boyd, own some 52 percent of outstanding shares.

Donald Trump holds a 30-percent stake in Trump Entertainment Resorts Inc., following the company's emergence from bankruptcy last May.

At Penn National and Station Casinos Inc., insiders own less than 20 percent of outstanding shares, while management insiders at Harrah's own 4.1 percent of shares.
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