UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
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RIVIERA HOLDINGS CORPORATION
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In the July 28, 2006 conference call that Riviera Holdings Corporation
("Riviera") will hold in conjunction with its release of second quarter
financial results, William L. Westerman, Chairman of the Board and Chief
Executive Officer of Riviera, will make the following remarks concerning the
Agreement and Plan of Merger among Riviera, Riv Acquisition Holdings Inc. and
Riv Acquisition Inc. and Riviera's August 8, 2006 annual meeting of
shareholders:
Our proxy materials in connection with our annual meeting of shareholders
to be held on August 8, 2006 have been mailed to shareholders of record as of
July 7, 2006. At the annual meeting, shareholders will vote on, among other
things, our merger agreement with Riv Acquisition Holdings Inc. and election of
our board of directors. All shareholders should have received our proxy
materials directly or through their brokers. If your shares are held in street
name, our proxy materials should have been forwarded to you. If you have not
received our proxy materials and you owned shares as of July 7, 2006, I urge you
to contact your broker immediately so that you can vote. Not voting on the
merger will have the same effect as voting against it because a favorable vote
of holders of at least 60% of our outstanding shares is required for approval of
the merger.
Our proxy statement contains important information concerning the merger
and the extensive process undertaken by us and our financial advisor to obtain
an acquisition price which we could recommend for stockholder approval. It is
important to understand that the process to find a purchaser of our company was
initiated in February 2005 and was conducted over an extensive period of time.
We were assisted in that process by our financial advisor, which made contacts
with over 100 parties, including gaming operators, leisure and entertainment
companies, private equity firms, and real estate investors, to solicit potential
interest in a purchase of our company.
Furthermore, prior to our April 6, 2006 announcement of the merger
agreement, two public reports were issued concerning a possible acquisition of
Riviera at or above a stated price. On December 27, 2005, my personal agreement
to sell my Riviera shares to the Riv Acquisition Holdings Inc. investor group
was reported. That report informed the public that in addition to acquiring my
shares, the investor group intended to seek to acquire control of Riviera at not
less than $15.00 per share. Thereafter, on March 23, 2006, Riviera reported its
discussions with the investor group for the group's acquisition of Riviera at
$17.00 per share. Despite those public reports, no one else came forward with a
credible offer at any price.
We understand that certain of our shareholders have suggested that the
$17.00 per share price for our stock should be restated and evaluated as a
per-acre purchase price for our Las Vegas real estate. However, it is important
to understand that if you choose to recharacterize the purchase of our stock as
a purchase of land for redevelopment purposes, significant additional costs must
be considered in calculating the true acquisition price. These include costs
associated with asbestos abatement, demolition, removal of debris, termination
of employees and cancellation of leases and other contracts, especially
convention bookings. Each of those items would be an additional expense for any
purchaser that intends to build an entirely new structure on our 26-acre Las
Vegas parcel. We believe those cost factors are particularly important when you
consider the substantial development currently taking place in the vicinity of
Riviera Las Vegas, as well as the age of our facilities.
Consequently, we believe that any per-acre pricing analysis must take into
account the significant costs required to turn our Las Vegas property into
vacant, developable land. Put another way, we believe that any prospective
purchaser contemplating a complete redevelopment of our 26-acre Las Vegas
parcel, rather than an improvement of our existing hotel and casino, would need
to factor those additional costs into the pricing of the deal.
We have analyzed a hypothetical scenario in which we sell Riviera Black
Hawk for $125 million, which is the highest price at which a potential purchaser
expressed an interest during our strategic process last year, and then we sell
our 26 acres in Las Vegas to a purchaser who wants vacant, developable land,
similar to the deal announced by Archon Corporation last month for the Wet' n
Wild property. We have concluded that such a purchaser would need to pay in
excess of $17 million per acre for our Las Vegas property in order for our
shareholders to realize a net $17.00 per share price. Our analysis is based on
the following cost factors and the purchaser's assumption or retirement of our
debt:
o Riviera's effective federal tax rate is 35%
o Riviera's effective Colorado tax rate is 4.63%
o Our tax basis in Riviera Black Hawk is $53 million
o Our tax basis in Riviera Las Vegas' assets including land is $106 million
o $56.5 million of federal tax net operating losses are available without
regard to Internal Revenue Code section 382 limitations
o In order to turn Riviera Las Vegas into vacant, developable land, costs
associated with demolition, abatement, WARN Act compliance and personnel
severance, as well as the cost of canceling our committed convention
sales contracts and lease agreements must be factored into the pricing of
the deal. Our rough estimate of the total of those costs is at least $36
million, although it is difficult to calculate an actual total prior to
occurrence of such an event.
I want to stress that after considering all the relevant factors, Riviera's
board of directors concluded that $17.00 per share was the best price we could
obtain for the company, and it continues to be the best price we can obtain for
the company. Therefore, we recommend that shareholders vote in favor of the
merger.
You should also consider that after we announced on November 8, 2005 the
termination of our strategic process to maximize shareholder value, the price of
our stock fell below $15.00 per share and did not climb above that level until
after the report on December 27, 2005 of my agreement to sell my shares to Riv
Acquisition Holdings Inc.'s investor group at $15.00 per share.
Our annual meeting will be held at the Riviera Las Vegas on August 8 at
11:00 a.m. We hope shareholders will attend in person or by proxy.