07/27/2006 11:00PM

South Coast bombshell a win-win deal


A monster business bombshell exploded this week on the Las Vegas gaming scene. The barely seven-month-old South Coast Hotel and Casino on the south Strip will be sold by Boyd Gaming Corp. to Michael Gaughan.

To say this deal was unexpected is an understatement. The 600-room South Coast opened just before Christmas.

The buzz on the street wants to know the who, what, where, when and how. Only Michael Gaughan and the top executives at Boyd know for sure, but there are plenty of facts to consider.

First, Gaughan will buy the South Coast using the proceeds from the sale of 15.8 million shares of Boyd Gaming stock. The deal concluded with the stock price at more than $36 a share, bringing the total proceeds to more than $576 million.

The South Coast cost approximately $583 million to build. Because the deal will be in cash, Gaughan will own the casino outright with no debt service, eliminating a huge financial albatross. The book value of the property is $575 million so most experts agree the price tag is fair.

Industry analysts have pointed to the South Coast as an underperforming property in the Boyd Gaming portfolio. While true, that was not totally unexpected.

The south Strip is in a developmental phase as a neighborhood. As more housing units are built and people move in, the South Coast will eventually have a solid population base to draw from. Also, a planned highway exit that would take I-15 travelers to the casino door has yet to be built. That remains a year or two away but will provide the easy access so vital for the casino's future success.

These were similar problems that Gaughan ran into, and overcame, when he built the Gold Coast and then the Orleans.

Meanwhile, Boyd Gaming has some short-term issues to deal with while still remaining a vibrant casino company. Its stock price has fallen from a high of $54 to a 52-week low of $34. While a troubling sign for some, others would view that as an opportunity.

Its portfolio of local casinos includes all the other Coast Resorts properties, which it purchased for $1.3 billion. Sam's Town is a signature property on Boulder Highway. Its downtown casinos thrive on heavy tourism from Hawaii.

The Boyd-owned Stardust will be imploded to make way for the $4 billion Echelon Place on the center Strip. Boyd owns profitable riverboats in the Midwest and is a partner with the MGM Mirage in the highly successful Borgata in Atlantic City.

So while many are looking for winners and losers, good guys and bad, they may be disappointed here. Sometimes deals are good for both sides and each party walks away with what it was looking for.

Richard Eng is the turf editor for the Las Vegas Review-Journal and author of "Betting on Horse Racing for Dummies."