Nevada regulators today approved Station Casinos’ plan for an initial public offering, allowing the locals gaming giant to move forward with its transition back into a public company.
Station, which was taken private in 2007, intends to be publicly traded under the new name Red Rock Resorts Inc. following the successful completion of its IPO. The Gaming Control Board approved the company’s plan at a special meeting today immediately before the Nevada Gaming Commission met and gave its final blessing.
Creating Red Rock Resorts, a name that evokes Station’s flagship property in Summerlin, won’t change how the company is known to customers and employees — it will still be Station Casinos. But the process of going public will reorganize Station under a complex corporate structure, with owners Frank and Lorenzo Fertitta continuing to have a significant stake.
The company has been operated under agreements with the owners’ Fertitta Entertainment management company. Station’s strategy for going public involves acquiring Fertitta Entertainment for $460 million and placing the whole business under Red Rock Resorts, a holding company that will be publicly traded on the Nasdaq.
When it’s all wrapped up, the Fertittas will own 43 percent of the company, down from 57 percent currently. Still, the Fertitta family will maintain enough of an interest that it will be able to “control any action requiring the general approval of our stockholders,” according to a Station filing with the Securities and Exchange Commission.
The Fertittas will also hold two of the five seats on the board of Red Rock Resorts, according to company representatives. The other three board seats will be held by independent directors.
Station’s move to go public signals a belief from management that the company is on firmer financial footing than it was just a few years ago. After it was taken private in a 2007 management-led buyout, Station was hit hard by the recession and had to file for bankruptcy in 2009. The company completed its restructuring in 2011.
Marc Falcone, Station’s chief financial officer, told the gaming board that his company has lately reported “very strong financial results.” He said the company has seen consistent revenue growth and that its operating margins have “improved dramatically.” Moreover, the company has slashed its debt by more than $400 million and greatly reduced its leverage, he said.
“This gives us, Station Casinos, one of the best balance sheets in the gaming industry today,” Falcone told the board.
Nonetheless, the IPO received strong pushback from the Culinary Workers Union Local 226, which has for years clashed with Station as it has tried to organize employees there. Lately, the union has focused on Station’s connection to Deutsche Bank, which controls a stake in the company through a subsidiary. The union has cited concerns about the bank because it was fined $2.5 billion to settle charges that manipulated the London Interbank Offered Rate, or Libor, a key benchmark interest rate.
Maya Holmes, the union’s research director, cited the fine and other concerns about Deutsche Bank while criticizing the IPO today, suggesting that Las Vegas might as well have a sign saying that “criminal affiliates” and others are “welcome to own and profit from Nevada casinos.”
The issue came up later when regulators discussed the IPO with Station representatives, who assured them that Deutsche Bank had no undue influence on their company. Board member Terry Johnson also sought and received confirmation from the company that the problematic subsidiary of Deutsche Bank was not the same one that has been involved with Station.
At another point, Commission Chairman Tony Alamo called up Robert Cashell, the Station board member designated to serve by Deutsche Bank. Alamo asked Cashell if Deutsche Bank had ever done anything to exert pressure on him or compromise his independence.
“Absolutely, unequivocally not,” Cashell said.
Once Station becomes public, Cashell will remain on the board as one of the three independent directors, but he will no longer be serving as a designee of Deutsche Bank.
Union affiliates also criticized the $460 million Fertitta Entertainment acquisition, saying it was too beneficial to company insiders, among other issues. But in the end, regulators had no serious objections to Station’s application.
The company’s appearance today was an expedited version of the normal process. Typically, Station would have sought approval from the gaming board two weeks before coming to the commission for the final OK.
Station President Richard Haskins indicated that the company needed to get both approvals at once in order to keep the IPO process moving forward on an ideal timeline, but it’s not clear exactly when stock will be sold. Station still needs to be cleared by the Securities and Exchange Commission and embark on what’s known as a “road show” to generate interest from possible investors.