Landcadia Holdings (NASDAQ:LCA) is days away from finalizing its merger with Golden Nugget Casino. At that time, LCA stock will cease to trade. The new stock, under the ticker symbol GNUG, appears likely to rise and possibly significantly.
Landcadia is one of several companies to help companies like Golden Nugget forego the initial public offering (IPO) process. Instead, Landcadia is the special purpose acquisition company (SPAC) that is bringing the new entity public.
But Landcadia has a twist. As it turns out, the owner of the Golden Nugget, Tilman Fertitta has also been the co-chairman and chief executive officer of Landcadia. If this smells fishy to you, you’re not alone. My InvestorPlace colleague Will Ashworth also smelled a rat. However, as Ashworth points out, barring any actual evidence to the contrary, the process – while of dubious ethical muster – is legal.
Fertitta Has an Itch to Scratch
A news item caught my eye when researching for this article. It’s one of those that I might say is a trial balloon.
Fertitta has apparently told individuals close to him he is considering bringing the Golden Nugget casino as well as some of his restaurant properties public via a traditional IPO. This is part of what Bloomberg reported:
An initial public offering could include a substantial number of the casinos and restaurants that are under the Golden Nugget and Landry’s umbrellas, giving the company a valuation of several billion dollars, one of the people said. Fertitta would retain control through a stake of well over 50%, the same person said.
The first thing I did was check the date on the article. I must have been looking at December of last year. But nope, it was from Dec. 1, 2020. Now let’s make one thing clear. The article only says Fertitta is considering taking this action based on the recent rally in the equity markets.
What’s the End Game for Golden Nugget?
Fair enough. But I thought that the whole idea of bring Golden Nugget public was to capitalize on the online gaming industry. Now it just seems that Fertitta is trying to get access to as much of other people’s capital as he can. Which fits a recent assessment made by Dana Blankenhorn, who writes Fertitta wants capital so he can start “lobbying and advertising online gaming.”
Again, the SPAC deal may not pass the smell test, but it’s a logical move since Fertitta took on a lot of onerous debt to keep his business afloat. But this new news makes me question how committed Fertitta is to Golden Nugget’s long-term fortunes.
When the merger is complete, Fertitta is set to own 52% of the new company. And Mark Hake wrote recently about an amendment that was written into the merger agreement that would limit Fertitta’s control over Golden Nugget should his stake drop below 30%.
Certainly the online gaming industry would represent a huge revenue stream for Fertitta. And he will leave the merger unencumbered by the crushing debt. But a process that already seemed sketchy just waded deeper into intrigue.
It’s OK to Have Commitment Issues With LCA Stock
Golden Nugget has all the makings of a company that may have a fun ride up, but may move down just as fast. And the news about a potential IPO involving not only Fertitta’s casinos but also some of his restaurant franchises makes me less convinced that this is about gambling and just a gamble.
If you have a healthy appetite for risk, it might be nice to have a holiday fling with LCA stock. But before you make a commitment to Golden Nugget, it’s best to find out what Fertitta’s intentions are. Because it’s starting to sound like he may like your money. However he may not be that into you as a shareholder.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.