Yahoo Finance Bally’s weighing buyout offer amid funding concerns for Chicago casino
Soo Kim, the chairman of Bally’s and founding partner of its largest shareholder, New York hedge fund Standard General, is doubling down on the company behind Chicago’s casino.
Standard General, which owns 23% of Rhode Island-based Bally’s, submitted an offer Monday to buy out the rest of the stockholders at $15 per share, valuing the company at about $648 million. That represents a premium to the current share price, but is less than 40% of what Standard General was willing to pay two years ago in an unsuccessful bid to buy the company.
“For whatever reason, the shares have not traded well,” Kim said. “There’s nothing more that we can do, other than speak through action, and our action is to multiply down on our commitment to this company and buy shares at a healthy premium to current shareholders.”
In 2022, just before Bally’s won a heated competition to build the first Chicago casino, Standard General bid $38 per share, valuing the company at nearly $2.1 billion. The stock price has been falling ever since, exacerbated by funding concerns faced by debt-laden Bally’s in building its proposed $1.74 billion Chicago flagship.
Kim blamed the valuation decline on “a lot of noise” about the company’s financial condition, as well as macroeconomic challenges such as inflation and higher interest rates.
Bally’s had $163 million in cash and $3.6 billion in debt at the end of the fourth quarter, according to its most recent financial reports.
Last week, Bally’s CFO Marcus Glover told the Nevada Gaming Control Board the company needed to bridge an $800 million funding gap to cover $1.1 billion in remaining costs to build the permanent casino at the Chicago Tribune’s 30-acre River West publishing site.
“Investors are making a mountain out of a financing molehill… we think Bally’s has plenty of time to lock down optimal sources of capital to fund the balance of the Chicago project,” Lance Vitanza, senior analyst in TD Cowen’s equity research group, said Tuesday.
Bally’s Chicago, which opened a temporary casino at Medinah Temple in September, plans to break ground at the Freedom Center this summer and open the permanent casino in 2026. It received final planning and zoning approval from the city in December 2022 for an entertainment complex that included an exhibition hall, 500-room hotel, a 3,000-seat theater, 10 restaurants and 4,000 gaming positions.
In January, Bally’s revealed that it would have to relocate the 500-room hotel tower to avoid damaging city water pipes near the Chicago River.
Last year, Bally’s agreed to pay Tribune Publishing, owners of the Chicago Tribune and other newspapers, $150 million to vacate the Freedom Center by July. Tribune Publishing plans to relocate printing operations to the Daily Herald plant in Schaumburg, which it purchased for an undisclosed price.
Kim said Bally’s needs to spend at least $1.34 billion in building costs on the Chicago temporary and permanent casinos to fulfill its obligation to the city in the host community agreement.
The actual total for the project will likely be more than the proposed $1.74 billion, Kim said, but the hard building costs do not include the $200 million Freedom Center land purchase or the $150 million relocation payment to Tribune. It also does not include a $40 million fee paid to the city and $140 million fee to the Illinois Gaming Board.
Bally’s also spent about $50 million renovating Medinah Temple, which will serve as the temporary casino for up to three years before the permanent facility opens.
“We’ve already spent something close to $600 million on the project,” Kim said.
In November 2022, days after buying the Freedom Center site from Nexstar Media Group, Bally’s sold the land to a Chicago real estate investment firm, leasing it back for 99 years and raising up to $500 million to help build the casino complex. Oak Street Real Estate Capital acquired the property for $200 million in the sale-leaseback deal, with a commitment to provide up to $300 million more in additional funding.
Capital markets have since gotten tighter amid rising interest rates, but Kim remains confident in Bally’s ability to secure additional financing to fully fund the Chicago project.
”We are very confident that Chicago will be funded and built on time,” Kim said.
Kim launched Standard General in 2007, focusing on TV stations, casinos and other distressed properties.
Standard General bought into Twin River Holdings, the predecessor casino company to Bally’s, after it emerged from bankruptcy in 2011. Kim joined the board in 2016 and became chairman in late 2019 as the hedge fund built up a 23% stake and its casino portfolio.
The hedge fund’s first bid to buy out the other shareholders was rejected by a special committee of the Bally’s board in May 2022, days after the company was awarded the rights to build Chicago’s casino by then-Mayor Lori Lightfoot.
Since then, the stock price has fallen sharply, trading under $10 per share earlier this month.
“Turning down the bid at $38 looks foolish in hindsight; the board may want to think twice before shutting the door on Kim’s latest overture,” Vitanza said. “I could see the board potentially engaging with Kim to get a bid closer to $20 and then taking that to the shareholders.”
On Tuesday, the Bally’s board announced it had formed a special committee to evaluate the $15 per share offer by Standard General, as well as ”any potential strategic alternatives” to the proposal.
Vitanza said Kim’s offer to buy may be perceived as a strategy for Standard General to exit its Bally’s investment.
“Some investors have asked me, do I think Kim could look to sell Bally’s? It wouldn’t be the first time a lead shareholder has used a go-private bid as a means to put a company in play,” Vitanza said.
Once a Chicago-based casino operator, the Bally’s name was purchased in 2020 by Twin River as part of its ambitious expansion under Standard General. In June 2021, Bally’s made its entree into Illinois with the $120 million acquisition of Jumer’s Casino & Hotel in Rock Island, which it renamed Bally’s Quad Cities.
It now owns 16 casinos across 10 states, including the temporary Chicago facility.
Bally’s Chicago continues to ramp up at Medinah Temple, generating nearly $10 million in adjusted gross receipts and more than $1 million in local taxes for the first time in February, according to the Illinois Gaming Board.
It still has a long way to go to meet Chicago’s target, however.
The city projected Bally’s would generate nearly $243 million in adjusted gross receipts this year, yielding about $35 million in local gaming taxes — the amount of casino revenue included in Chicago’s 2024 budget. Through February, the city’s share of Bally’s wagering tax is about $1.92 million, according to Gaming Board data.
Building the permanent Chicago casino, which would be the state’s largest, remains central to meeting the goals for both the city and Bally’s.
“We are redoubling our commitment to the company…and the upside from the Chicago project is part of why we would be interested in doing it,” Kim said.
Bally’s stock price rose more than 28% Monday on the Standard General buyout offer news, closing at $13.64 per share. It continued to climb Tuesday morning, trading higher than $14 per share.
