An exterior view shows the Tropicana Las Vegas at dusk on March 29, 2024 in Las Vegas, Nevada.
David Becker | Getty Images
As the famed Tropicana in Las Vegas closes its doors on Tuesday, its operator Bally’s Corporation he faces his own existential battle. At stake: its ownership, its status as a public company and its highest-profile projects.
Bally’s chairman Soo Kim and Standard General, the private equity fund he founded, last month made an offer to take the company private for $15 a share. Before its offer, the stock was trading at about $10 a share. Standard General owns about 23 percent of Bally’s stock, it said last month.
But some high-profile investors argue that Kim is undervaluing the company – and so is the market, they say, because he has lost confidence in the company’s strategy and financial stability.
Dan Fetters and Edward King of asset management fund K&F Growth Capital sent a letter on Tuesday to the special committee formed to consider Kim’s proposal. The letter called on members to reject the proposal.
Instead, Fetters and King propose a strategy that sends Bally’s back to its casino roots.
Bally’s has 16 casinos in 10 states, as well as an interactive business in sports betting, online gaming and free games. Plans have been announced to build Chicago’s first casino and a resort to replace the historic Tropicana on the Las Vegas Strip, as well as an effort to win a gambling license for a former Trump golf course in New York.
The entrance to Bally’s Hotel & Casino, located next to the Tahoe Blue Sports & Event Center, is shown on February 12, 2024, in Stateline, Nevada.
George Rose | Getty Images
Fetters and King argue that Bally’s should stay in its lane and stop wasting money on efforts that aren’t its core business. They insist the company doesn’t know how to build or operate high-end casinos or online sports betting and online gaming businesses, saying it’s spending on those projects that has depressed its share price and market cap.
The company’s stock has fallen nearly 30% over the past 12 months.
Kim “is proposing to take advantage of this weakness and acquire Bally’s at a fraction of its fair value,” Fetters and King argued in the letter.
“Moon’s bets on massive, unfunded development projects, failed online execution in the US, casino resort properties underperforming its local counterparts, an overleveraged balance sheet with little near-term deleveraging prospects and irresponsible capital allocation decisions have driven stock and bonds to the point of indifference by the investment community,” the letter said.
Shareholders also take issue with Bally’s $69 million in share repurchases during the fourth quarter.
Standard General, for its part, said last month that the proposed take-private deal “will allow the Company’s shareholders to immediately realize a premium price, in cash, for their investment and provides shareholders with certainty of value for the shares them, especially when faced with operational risks inherent in the Company’s business activities and market risks inherent in a company remaining publicly traded.”
Divestment plan
The letter from Fetters and King suggests bringing in a better equipped partner for the Chicago casino. Hard Rock International, owned by the Seminole tribe in Florida, had also bid for a casino license there. But Bally’s won with a $1.7 billion commitment, which has since narrowed to a $1.1 billion deployment. In March, Bally’s chief financial officer told Nevada regulators that the company was seeking $800 million in financing for the project.
Fetters and King also write that Bally’s would benefit from partnering with or selling Tropicana’s strip operations. The property, which opened in 1957, is closing its doors Tuesday and headed for demolition. An integrated resort will be built next to a new baseball stadium for Major League Baseball’s Athletics, which will be moved from Oakland to Las Vegas. Gaming real estate investment trust Gaming and Leisure Properties owns the website.
An exterior view shows the Tropicana Las Vegas on March 29, 2024, in Las Vegas, Nevada.
David Becker | Getty Images
Fetters and King say Bally’s should divest the New York golf course and various technology businesses it acquired to pursue sports betting and instead focus solely on the digital casino.
Bally’s market capitalization is just over half a billion dollars. It has been unable to pose a competitive threat in any space other than regional casinos, despite the strength of its old brand name.
Although K&F Growth Capital owns less than 1% of Bally’s stock, Fetters and King are well-known venture capitalists in the gaming industry and co-founders of blank check firm Acies Acquisition Corp. with Chris Grove and former MGM Resorts International CEO Jim Murren.
This is the second time Kim has offered to take Bally’s private. In January 2022, he offered $38 per share when the stock was trading at $26.
“We want to buy and we disagree with the market,” he told CNBC at the time. “We think it will be worth a lot more in the near future.”
— CNBC’s Jess Golden contributed to this report.