Full House Rejects Z Capital Offer

Full House Resorts said Affinity Gaming owners Z Capital Partners' offer of $132.5 million or $1.79 per share “reflects a stark and fundamental disconnect from our board’s understanding of the company’s value." Z Capital CEO James Zenni (l.) said the deal that would have added Full House's five casinos in four states to its 11 Affinity properties in four states would have unlocked “unrealized potential for Full House stockholders.”

Full House Resorts has rejected a $132.5 million buyout offer from Z Capital Partners, owners of Nevada-based Affinity Gaming. In a letter to Nevada-based Z Capital Partners Chief Executive Officer James Zenni, Full House Chairman Brad Tirpak and Chief Executive Officer Dan Lee wrote, “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.”

Tirpak and Lee wrote the offer of $1.79 per share “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.” The offer was 35 percent lower than Full House’s closing price on October 19. Full House’s board and management own 17 percent of the company’s stock.

Furthermore, Tirpak and Lee told Zenni, “Your letter indicates a price without specifying a transaction structure or providing evidence of financing. The price dramatically undervalues the company’s business and does not remotely reflect the company’s strategic value and future prospects. Our board and management team see significant upside to the company’s current and recent trading prices based on already-completed capital projects across our existing portfolio as well as established or prospective organic growth opportunities in Colorado, Indiana and New Mexico, among other places. Based on our review, we are fully confident that our strategic plan will deliver value for our stockholders far superior to the value your letter indicates.”

Full House currently is 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. It’s also exploring opportunities in Washington state.

Zenni had said Z Capital and Affinity Gaming would bring significant operational capabilities and expertise to Full House. He said the acquisition would be funded by debt. The offer arrived soon after Affinity hired former Tropicana Entertainment Chief Executive Officer Tony Rodio as chief executive officer (see “People” section of GGB News).

If the merger happens, Rodio would be the head, according to Zenni. “Tony is one of the top executives in the gaming industry and I’m confident that he is the right person to drive Affinity’s continued growth and enhanced commitment to the player experience. I look forward to working closely with him in this new role,” said Zenni.

Zenni added, “With an experienced and dedicated management team, Affinity would bring significant operational capabilities and expertise that we believe would further propel the combined company’s growth and unlock unrealized potential for Full House stockholders.”

Z Capital would have added Full House’s five casinos in four states to its 11 Affinity properties in four states. However, Tirpak and Lee cautioned Zenni, the acquisition would present “significant execution risks” in Nevada and Colorado where both companies operate casinos. Affinity also operates in Missouri and Iowa, and Full House in Mississippi and Indiana.

Roth Capital Partners Gaming Analyst David Bain, who previously estimated Full House at $3.80 and $4.50 per share, said the offer was too low in a note to investors before Full House released its rejection letter. Bain said, “We believe the offer lacks credibility and is somewhat irregular.”

Macquarie Gaming Analyst Chad Beynon maintained his $3.25 per-share estimate on Full House, noting Z Capital’s offer contains too many unknowns to determine if it’s a good value. Beynon added a takeover could lead Affinity to become a public company and expand, but not if the deal primarily is just for cash.

Another analyst noted, “We find Z Capital’s offer a head-scratcher unless it was intended to impact share prices for negotiations below FLL’s current trading value.”

Interestingly in September, Full House officials met at Z Capital’s offices in Lake Forest, Illinois with Managing Director Andrei Scrivens. Tirpak and Lee wrote, “Our purpose was to express potential interest in acquiring certain of Affinity Gaming’s assets. We remain interested in doing that.”

Lee, formerly chief executive officer at Mirage Resorts in 1990s and CEO at Pinnacle Entertainment, took over Full House in 2015. Lee led a shareholder takeover of Full House at that time. 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 currently has more than $2.3 billion of regulatory assets under management, with five casinos in Nevada, including three Primm resorts at the California state line and the Silver Sevens near the Las Vegas Strip.