MGM MGM Resorts International

Monarch Casino & Resort Inc. (MCRI) recently signed a definitive acquisition agreement with Riviera Operating Corporation and its parent company Riviera Holdings Corporation. Per the agreement, Monarch will acquire Riviera Black Hawk for $76 million, of which $2.1 million is the working capital of the latter. The transaction is expected to close before the end of the second quarter of 2012.

Monarch will fund the deal with the proceeds from a new revolving credit facility, the terms of which are materially consistent with Monarch's existing credit facility. Wells Fargo Bank will lead the syndication process of the new revolving credit facility.

Monarch Casino & Resort exited the second quarter of 2011 with a total cash balance of $10.0 million and no long-term debt. During the quarter, the company paid down its credit facility by $5.0 million, which lowered the outstanding balance to $17.0 million.      

Opened in 2009, Riviera Black Hawk is the first casino, en route from Denver. Riviera Black Hawk’s compelling geographic location made it a lucrative acquisition target. The deal is in sync with the Monarch’s strategy to grow through geographical diversification.

Additionally, Denver offers a relatively favorable regulatory environment which will facilitate a seamless closure of the transaction. Monarch anticipates that upon completion, the acquisition will be accretive to earnings, net of transaction costs.

We view the deal as strategically positive for both parties, given that Riviera Black Hawk’s parent company recently emerged out of a bankruptcy. Post acquisition, Monarch will retain all 250 employees of Riviera Black Hawk.

Monarch Casino & Resort, through its subsidiary, Golden Road Motor Inn Inc., owns and operates Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada, which features approximately 61,000 square feet of casino space.  The company posted solid earnings in its last quarter and gained market share through continuous upgrades.

However, Monarch does not have any exposure to the emerging markets like most of its giant peers –– MGM Resorts International (MGM) and Wynn Resorts Ltd. (WYNN). Additionally, Monarch’s core market, Nevada, is reeling under unemployment pressure.

Monarch currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
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