FADING ASCA

Let's face it, ASCA has been on the "for sale" block for 3 years.

 

 

Since Craig Neilsen died in 2006,  Ameristar has been on sale; maybe not formally but for all practical purposes.  If there was a corporate casino buyer, we'd bet that ASCA has already talked to them.  Hiring an investment bank, to some extent, may be an acknowledgment that PENN, BYD, nor Genting were interested and the talented bankers at Lazard will have to hit the pavement aggressively to find a buyer.  We're not saying they won't succeed but the premium to today's stock price may not be great.

 

ASCA currently trades at 7.5x our 2011 EV/EBITDA estimate, a slight premium to PENN and a huge premium to PNK.  PENN's leverage is half of ASCA's and its growth profile dwarfs that of ASCA.  PNK trades at a 1.5x turn discount to ASCA, indicative of a solid takeover premium implicit in ASCA.

 

It is conceivable to us that ASCA could be worth 8x or $19 in a takeout scenario, 16% upside from here.  However, let's not forget about the time value of money, which is always important in gaming deals.  Due to licensing and jurisdictional approval requirements, gaming transactions take more time to close.  Moreover, most private equity firms are not licensed in ASCA's jurisdictions and some of the major PE players in gaming have already been burned (Harrah's, Station, Aztar, PENN, etc). 

 

Assuming 6 months to find a buyer and reach an agreement and 9-12 months to close, 16% upside does not seem so juicy, and that's assuming a buyer can be found and the deal can be closed.  We'd handicap those odds below 50%.


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