Everbay Capital, a prominent investment firm based in New York, recently voiced concerns regarding Golden Entertainment’s CEO, Blake Sartini, and his plan to purchase the company. Announced just last week, the buyout proposition has already stirred controversy, particularly due to the offered price of $2.75 per share for the company’s remaining operations after its real estate divestiture. According to Everbay Capital, this price grossly underestimates the true value of Golden Entertainment’s assets.
Everbay Capital has urgently called on Golden Entertainment’s board to reconsider and amend the transaction details, emphasizing the need for greater transparency to ensure a more beneficial outcome for the shareholders. The firm pointed out that any seasoned executive familiar with the gaming sector would likely view the current valuation as unfavorable.
The timing of this proposed transaction is particularly noteworthy, taking place a mere two days following Golden’s stock hitting its lowest point in four years. Everbay Capital suggested that the timing was not coincidental but strategically chosen to exploit the low share price, enabling CEO Blake Sartini to acquire the company’s remaining operations, referred to as RemainCo, at a significantly reduced rate. This acquisition is intended to be financed through the sale of Golden’s lucrative real estate holdings.
To highlight the discrepancy in valuation, Everbay Capital compared the deal to MGM’s recent sale of its MGM Northfield Park operations to Clairvest Group, which was carried out at a 6.6x EBITDA multiple. Based on similar calculations, Everbay posited that RemainCo should be valued at approximately $15.80 per share, a figure markedly higher than the proposed $2.75 per share.
The investment community is closely watching this development, as Golden Entertainment also disclosed its agreement to sell various casino real estate assets to VICI Properties Inc. These transactions have sparked further debate about the fairness and strategic intent behind the consolidation of real estate and operations sales into one agreement, a structure that Everbay Capital argues pressures shareholders into accepting the undervalued offer for RemainCo to facilitate the real estate sale.
Everbay’s deep dive into the deal structure revealed additional apprehensions, particularly the lack of evidence suggesting that a thorough market exploration for selling RemainCo was conducted before settling on Sartini’s offer. In response, Everbay proposed several modifications to the current agreement: notably, the separation of shareholder votes for the real estate and RemainCo sales, an extension of the go-shop period from one month to a more reasonable three months, and the elimination of a termination fee if a superior offer emerges during this period.
Moreover, Everbay advocated for the RemainCo sale to require approval from a majority of Golden’s unaffiliated shareholders, to ensure the transaction’s legitimacy and shareholder consensus. Under the present structure, the overall valuation of Golden Entertainment stands at $30 per share, with about 90% of the compensation being offered in VICI Properties shares.
While Everbay Capital’s objections have echoed widely, there exists a counterargument from those within the industry who believe the deal might strategically position Golden Entertainment for long-term growth despite the seemingly low current valuation. These voices suggest that the divestiture of real estate can streamline operations and focus on core gaming activities, potentially unlocking value in the future that the present metrics do not fully capture.
Additionally, some market analysts argue that the real estate heavy nature of Golden’s assets might not provide the sustained growth potential that the company can achieve by refocusing on its operational strengths. By shedding its real estate liabilities, Golden Entertainment could expand its gaming footprint more aggressively, without the encumbrance of property management.
Nevertheless, the controversy surrounding the transaction highlights the delicate balance between asset divestiture and shareholder value enhancement. As stakeholders await the board’s response to Everbay Capital’s letter, the ongoing negotiations and potential revisions could significantly impact Golden Entertainment’s strategic direction and future market performance. The company faces the formidable task of aligning executive ambitions with shareholder interests while navigating complex market dynamics in the gaming industry.
This unfolding situation remains a focal point of discussion within financial and gaming communities alike, as it underscores broader themes of corporate governance, valuation fairness, and strategic asset management. Whether Everbay Capital’s calls for transparency and value recognition will sway the board remains to be seen, but the outcome is likely to serve as a benchmark for similar transactions in the industry landscape.
