Casino Firms Caught Up in Merger Fever

Place your bets and guess which of the nation’s casino operators will still be independent in 1990.

Takeover fever has hit the gaming industry, with several casinos acquired by competitors in recent months. Two other major casino operators currently face takeover threats.

And some analysts say the consolidation trend is an odds-on favorite to continue over the next two years.

“In the 1990s, between 80% and 90% of the gaming industry will be controlled by a handful of companies,” predicted Marvin B. Roffman, an analyst with the securities firm Janney Montgomery Scott Inc. in Philadelphia.

But other observers, noting that seven or eight players already dominate the industry, asserted that any future merger activity would be limited to the acquisition of a few smaller, struggling casinos by the leading operators, or to takeovers of the bigger players by outside suitors.

“I tend to think you’ve seen most of the concentration already,” said Harold Vogel of Merrill Lynch & Co.

In some of the recent deals:

- Donald Trump, the New York financier who already operates two hotel-casinos in Atlantic City, N.J., agreed to buy control of Resorts International Inc., which has one Atlantic City hotel-casino operating and another under construction.

Resorts also received an unsolicited bid from a group led by Denver oilman Marvin Davis. And Trump’s offer followed Resorts’ rejection of an earlier bid by Pratt Hotel Corp., owner of the Sands hotel-casino in Atlantic City.

- Bally Manufacturing Corp. acquired the Golden Nugget hotel-casino in Atlantic City from Golden Nugget Inc., and last year Bally bought the MGM Grand hotel-casinos in Las Vegas and Reno.

- Caesars World Inc., with two hotel-casinos in Nevada and another in Atlantic City, is fighting a hostile takeover from money manager Martin T. Sosnoff.

- Ramada Inc., with hotel-casinos in Atlantic City and Las Vegas, faces a potential takeover threat from investor Paul Bilzerian, who owns 4% of the firm.

- Holiday Corp., with a New Jersey hotel-casino and three more in Nevada, recently completed a $1-billion recapitalization aimed partly at thwarting any unwelcome takeover bids.

Some smaller casino operators are hurting and appear vulnerable.

Dunes Hotel & Casinos Inc. said recently that it might seek protection under federal bankruptcy laws because it has been unable to sell the company.

Elsinore Corp.’s Atlantis hotel-casino in Atlantic City already is reorganizing under bankruptcy court protection.

Roffman predicted that additional consolidation would stem from a common source: the inability of some operators to survive the slow growth and modest earnings gains he expects in the industry over the next two years.

The lackluster growth prospects can best be seen in Atlantic City, he said.

In 1983, there were nine casinos that collectively earned $168.7 million, representing 9.5% of their $1.8 billion in combined revenue, he said. But last year, 11 casinos together earned only $55 million, or 2.4% of their $2.28 billion in combined revenue.

“There are now too many casinos for the number of people coming to town,” Roffman said.

But Vogel of Merrill Lynch said New Jersey’s gaming commission “is against having further concentration, one reason why I don’t think it will happen.”

And in Nevada, the $3.5-billion market already is dominated by four companies--Caesars, Bally, Hilton Hotels Corp. and Circus Circus Enterprises Inc.--that should survive sluggish growth without having to seek mergers, Vogel said.

Another analyst, Mark Manson of Donaldson, Lufkin & Jenrette, agreed. “We’re down to a few big players” making more consolidation unlikely. He also said that looking at the combined revenue figures of the casinos understates the industry’s health.

Again using Atlantic City as an example, Manson said if one looks at revenue per casino--and excludes the struggling Atlantis--the remaining 10 operators show steady revenue gains averaging nearly 5% a year.

More importantly, he said, the casinos are generating enough business to maintain cash flows that are much stronger than the companies’ reported profits.