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A Second Run For Circus Circus

Inside Wall Street


Casino stocks have been a losing bet all year. Most of them have tanked because of the slump in Las Vegas. Circus Circus Enterprises (CIR) has been no exception, with its stock at just 16, down from 26 in mid-March. On top of the glut of hotels in Las Vegas, Circus stock also has been reeling from dashed hopes of a takeover by Hilton Hotels. Talks between the two ended in late March--with no cigar. Chief reason: price. Circus officials gave other reasons for the talks' collapse, including a possible large tax liability. But one investment manager contends that Circus at the time simply wanted more money than Hilton was willing to pay, said to be around 28 a share.

Guess what. Whispers are that Hilton has approached Circus for another round of talks. At this point, says this investment banker, Hilton thinks its 28-a-share offer was just right. Earlier, Circus--a major casino whose properties include Luxor, Excalibur, and Circus Circus in Las Vegas--had wanted a decent takeover premium on its stock, then trading at around 25.

If Hilton sticks to its original offer of 28, says one analyst, it would represent the big premium on Circus' current price. For Hilton, whose stock was then between 32 and 34, the dynamics of such a deal would hardly change. Its stock currently trades at 31. Hilton's idea at the time of the talks was to split its gaming and hotel operations into two separate public companies. Circus would then be merged into the Hilton gaming arm.

Both companies badly need a combination because of the increased competition in the industry. Jason Ader, an analyst at Bear Stearns who downscaled his rating on Circus from "attractive" to "neutral" when the talks failed, notes that, as in any other large-cap gaming merger, a Hilton-Circus combo could provide economies of scale through centralized purchasing and reservations. Analysts expect Circus will earn $1.09 a share for the year ending Jan. 31, 2000, up from an estimated 90 cents in fiscal 1999. The company earned 94 cents in fiscal 1998. Both Hilton and Circus Circus declined comment.BY GENE G. MARCIALReturn to top

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