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Casino merger craps out
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August 7, 1998: 4:58 p.m. ET
Station Casino, Crescent merger terminated, prompting lawsuits
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NEW YORK (CNNfn) - Station Casino Inc. and Crescent Real Estate Equities Co. on Friday terminated their planned $1.7-billion merger, prompting the real estate investment trust controlled by financier Richard Rainwater to sue the Las Vegas casino operator.
The latest developments confirmed industry speculation of deal's impending demise. Since last week's postponement of a shareholder meeting to approve the merger, Station's stock has lost more than half of its value.
Shares of Station (STN) were off 2-1/16 at 5-15/16 in active trading on the New York Stock Exchange. Crescent's stock (CEI) rose 1-7/16 to 29-13/16.
(Click to see recent stock activity)
At the heart of the dispute were holders of Station's convertible preferred stock, who were upset with the terms of the original merger agreement, reached in January.
In order to help finance the transaction, Crescent in June announced a rights offering for holders of common stock. But the preferred shareholders -- who held stock that was convertible into common shares -- were concerned about the dilutive impact of the offering on their investment.
Station executives contended they were conducting negotiations with the investors in hopes of resolving the issues.
"We've been working with the preferred shareholders, trying to circle a number that would secure a vote," said Glenn Christenson, chief financial officer at Station.
"We felt we were very close to an agreement. We were surprised to receive the termination letter," Christenson said. He declined to identify the institutional shareholders of the preferred series.
But following the July 27 postponement, Crescent began to notifying Station executives that they were in breach of the merger agreement. By Friday, July 31, Station had filed in federal and state courts in Nevada for declaratory relief.
Crescent said on Friday it also filed an action in federal court in Texas seeking declaratory relief as well as unspecified damages.
Officials from the Ft. Worth, Texas-based REIT weren't available for comment.
Crescent added it intends to cancel its previously announced common stock rights offering and the proposed dividend increase, which was subject to the completion of the merger.
Meanwhile, Station, which has stated it believes that Crescent's contentions are "without merit," will continue as an independent entity, Christenson said.
"We'll continue to evaluate several ways to improve shareholder value. We don't need a strategic partner, though," Christenson said.
The company is on schedule to generate positive cash flow of $192 million for the current fiscal year, the executive said.
-- by staff writer Robert Liu
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