UNITE HERE has sent a letter to Deutsche Bank (NYSE: DB) to urge the bank to dispose of its non-core casino asset through the Station Casinos (Red Rock Resorts) IPO in order to boost its capital position and investor confidence. The letter can be viewed here.
“Investors might be surprised to learn that Deutsche Bank is not selling off its Las Vegas casino stake even when the Station Casinos IPO goes forward,” said Ken Liu, a UNITE HERE researcher. “Instead of buying out the bank, the casino company will use the IPO to pay its founding family and management $460 million. The bank should demand a better deal from Station Casinos.”
On January 28, Deutsche Bank co-CEO John Cryan announced that the Station Casinos IPO has been postponed, but the bank is “intent on proceeding there with an IPO.” However, as currently structured, Station Casinos intends to raise $450 million through an IPO and then pay $460 million to internalize management. In short, Station Casinos is doing the IPO to fund a $460-million insider deal and not to buy out Deutsche Bank (or to fund growth or pay down its $2.2 billion of long-term debt).
Deutsche Bank’s stake in Station Casinos could be worth north of $340 million, and a sale at this price could improve its common equity Tier 1 capital ratio by more than 3 basis points.
“If Deutsche Bank is serious about selling non-core assets and improving its capital position without a capital raise, it should make a full and fully-paid exit from Las Vegas through the Station Casinos IPO,” said Liu. “It doesn’t make sense for Deutsche Bank, as a 25% owner and a major Wall Street bank, to sit back and accept the IPO as currently structured.”
Station Casinos operates 21 casinos, mostly in Las Vegas, Nevada. Deutsche Bank is also lead underwriter of the IPO.
For more analysis of the risks associated with the Station Casinos (Red Rock Resorts) IPO, go to www.RRRIPOdissected.org.