Shares of Riviera Holdings Corp. surged again this morning on continued speculation that the company's Riviera Las Vegas resort could be redeveloped under new ownership.
Riviera stock rose more than $6 per share Tuesday in part because of news that the Riviera had hired an investment bank to help the company "explore strategic alternatives to enhance shareholder value."
Also Tuesday, Riviera officials said the company significantly narrowed its losses last year compared with 2003 and would initiate a three-for-one stock split to increase liquidity for shareholders and reduce stock volatility.
Riviera Holdings Chief Financial Officer Duane Krohn declined to comment on whether the strategic plan would involve a sale.
"Nothing is excluded," Krohn said. Jefferies & Co., an investment bank that has issued bonds for the company, will explore "all strategic alternatives."
Analysts say a slew of new casinos and high-rise condominium projects planned around the Riviera at the north end of the Strip -- including the upcoming Wynn Las Vegas resort and the Venetian's adjacent Palazzo resort -- have improved prospects for redeveloping the aging casino hotel. Recent land sales and high sales prices for luxury condos on the Strip have also fueled prices for gaming stocks with prime Strip properties.
While the Riviera has long been rumored as a potential takeover target, news of the investment bank's involvement is an indication that the company has become more serious about a potential sale, analysts say.
Houston-based Landry's Restaurants Inc. has acknowledged interest in the Riviera property but hasn't yet taken a bite, instead announcing a deal this month to buy the Golden Nugget hotel and casino downtown for $295 million including debt.
Analysts say that could indicate the Riviera might be valued even higher, pricing out many potential investors interested in getting in on the Las Vegas land rush.
"That land's going to be more valuable to someone who can redevelop the property," said one analyst who declined to be named. Riviera doesn't have the cash to build a major resort because "the property is old and has limited profit potential."
Over the past few months, analysts have begun to value the company based on the redevelopment value the Riviera's 26 acres rather than the returns generated by the property itself, the analyst said.
"If you own their stock you want them to sell" the Riviera, the analyst said. "It's really a property at its maturity."
Riviera shares, which trade on the American Stock Exchange, have risen more than fivefold over the past year and have traded below $10 per share since early August.
Shares rose 15 percent, or about $6 per share, to $43.55 on Tuesday's announcement.
Also Tuesday, Riviera said it would refinance its bond debt, which now carries an interest rate of 11 percent and is payable in 2006, or otherwise recapitalize the company to improve profit.
The company paid down about $4 million in debt last year but profit was still hurt by interest payments on about $215 million in long-term bonds.
Riviera reported a net loss of $2.1 million or 59 cents per share last year compared with a loss of $14.5 million or $4.16 per share in 2003.
Cost controls and a hot Las Vegas economy helped boost last year's results, officials said.
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