Boyd Gaming is considering purchasing some or all of Station Casinos. The company's current position is as a "local's focused" casino company, in particular with respect to its Las Vegas operations and its Coast Casinos operations as well. Boyd has already identified that it needs to become bigger in order to implement a strategy based on operational excellence, but it also wants to pursue customer intimacy as well, something that it feels many of its competitors are not presently doing. The company's customer intimacy strategy relies on building long-term relationships with locals, who it sees as preferring to avoid the large mega-casinos that are focused on the tourist market. For Boyd, the potential acquisition of Station Casinos is a means of meeting the needs that were previously identified -- an improved presence in Las Vegas and a larger organization overall -- while maintaining the customer intimacy framework and the local's focused strategy.
The company has a couple of options for financing the purchase. It does not have the ability to pay cash, but has the option of generating cash by selling the land that had been earmarked for the Echelon project. Boyd could also find other sources of financing, including a stock issue or a debt issue. Interest rates are low at present, so Boyd should be able to secure long-term debt at a relatively low rate, as it has a reasonable financial position with respect to its liquidity risk and has strong ongoing cash flows. An equity issue might be more risky, since the company is buying an existing property, but this option could also be investigated. The sale of the Echelon property would signal clearly that Boyd is going all-in on the local's-focused strategy. Without this property, Boyd is going to have difficulty pursuing a strategy that emphasizes direct competition with the major players, so Boyd can and should sell this property in order to pursue the strategy that it has chosen.
Boyd attempted to purchase Station Casinos in 2009 for $2.45 billion in cash and assumed debt. At the time, Station Casinos was carrying $6.8 billion in debt and operating in Chapter 11 bankruptcy (Green, 2009). Realistically, this offer was generous given that Station's operating position was untenable in the long-run with the company in the depths of recession. However, the deal would have left Station's creditors and equity investors with a number of losses. They would have received pennies on the dollar for their investments and no equity in Boyd with which to compensate them.
A few months later in early 2010, Station filed a new reorganization plan. The plan would have sent intellectual property, information technology systems and customer databases to a shell company along with several properties that would all be purchased by the current owners of Station. The remaining properties -- the less valuable ones -- would be foreclosed on and sold at auction. The process, Boyd rightfully claimed -- was rigged in favor of the current Station ownership team and would effectively thwart Boyd's purchase attempt (Green, 2010). The reorganization proposal was allowed to stand, however, and Boyd dropped out of the auction (Velotta, 2010).
It is assumed that the opportunity to purchase the Station Casino assets has resurfaced and that the process is fair. Boyd has decided to re-enter the Station Casino stakes. The implementation plan is focused on two key areas -- the purchase and the financing. The objective of the purchase is to purchase 11 of the most strategically valuable assets from Station Casinos, along with the information technology and intellectual property rights. The purchase process is going to require several steps.
The action plan for the purchase is going to involve identifying the key assets that need to be purchased. The second step will be to familiarize the company's management with the auction process. The third step will be to engage the bidding process. Within these steps, the most important changes are going to be at the organizational level. It is recommended that Boyd set up a task force to spearhead the purchase part of the action plan. The task force will have two sub-units, one to determine the best assets to buy and the other to understand the process and guide the company through that process. There should be a senior executive such as the CEO overseeing the task force and working to coordinate between the two teams.
There will be three milestones. The first will be to have the properties identified; the second will be to have the process understood and the third milestone will be to enter and subsequently either complete the bid process or drop out. This purchase is a significant component of Boyd's future strategy, so resources should not be spared in the pursuit of these properties. The implementation team should consist of the best managerial and functional (lawyers, accountants) members of the organization. The budget should be significant for this project and there should be considerable investment in IT for the project, including mechanisms for both communication and for project management. The deadline for the process will essentially be set by the auction process, which is a legal process that is highly regulated. There should also be a deadline in terms of price -- once the price hits a certain level that the process should be ended.
The financing part of the implementation plan will be conducted separately, by the finance department under the supervision of the Chief Financial Officer. The team's actions and objectives are focused on determining the different financing options that are available and evaluating their costs and benefits. The value of the Echelon property must be determined in order to make a more informed decision about that option, and indeed the market for that property should be determined as well so that Boyd understands what a quick sale might do to the property's value, especially with a relatively sluggish economic recovery underway and real estate values still suppressed. The other options of issuing equity or debt should also be investigated. In addition, the financing team will be charged with determining a fair value for each of Station's assets. The prior deal fell apart because Station's bondholders did not think that $2.45 billion was a fair offer, but Boyd did not believe that any higher price was fair either. Determining the fair value of these assets will be critical to making this deal happen, or allowing Boyd to walk away from Station once and for all.
The milestones will be the determination of value of each of Station's assets and the determination of the optimal method of financing any potential deal. As with the rest of the implementation plan, significant resources should be dedicated to the financing team in terms of having the best people working on the task with ample financing and information technology resources. This deal is critical to the future of the company and should not be subject to any reasonable constraint on resources. The timeline for the financial team is going to be three months, so that the company's executives have sufficient information in that time to determine the strategy for the bid process.
Organizational Change Management
There are two organizational change issues at work with this strategy. The first is that Boyd is going to make some structural changes to create the teams to work on this purchase option. This will effectively create new strong units within the organization that will commandeer consider resources. This restructuring will also require some work in terms of the organizational culture to ensure that there is minimal disruption to the ongoing operations despite these changes. The second major organizational change at work with this strategy is the potential change that is going to result from absorbing the new assets. The company will require a transition team that will be able to describe the organizational culture at Boyd and communicate this to the new employees. This is especially important because Station employees have likely become acculturated by the former owners to view Boyd negatively.
The financial strategy is going to be essential, and after the finance team has performed the first element of the task it must begin work on how to implement the purchase in case it goes through. At that point, the finance team will have made its recommendation to management with respect to how to finance the purchase. Given that Station has substantial debt, it is entirely possible that the sale of the Echelon property is going to be advised, rather than taking on even more debt in order to finance the purchase. The company's capital structure is going to be heavily oriented towards debt, so the plan should reflect that and emphasize diverting cash flow to pay down this debt. The preparation of a breakeven budget is poor capital budgeting technique -- a net present value analysis would be better. Without Station's financial records, no credible financial statements can be provided. The cash flow for…