Tropicana Entertainment: Deal with GLPI & ERI, Merger Arb

This won't be actionable for some readers, but Tropicana Entertainment (TPCA, 84% owned by IEP) announced a deal today where Gaming & Leisure Properties (GLPI) will purchase the real estate and Eldorado Resorts (ERI) the gaming operations for a combined total of ~$1.85B, subject to adjustments.  One of those adjustments relates to Tropicana's Aruba property which needs to be sold or spun-off prior to the closing.

So here you have a controlled company, with an illiquid stock, entering into a complicated deal with two parties and an uncertain final cash amount all leading to a potentially attractive merger arbitrage spread.  If the headline number is correct, using the current share count of 23.8 million shares, gets you to $77.61 per share versus under $70 today.  Unpacking that number is a little more complicated, from the 8-K today:

(a)                                 $640 million, which reflects the consideration paid by Parent in respect of the Merger;

(b)                                 plus $1.21 billion, which reflects the Real Estate Purchase Price received by the Company;

(c)                                  plus the amount of net proceeds received by the Company in connection with the distribution, transfer or disposition of its Aruba Operations;

(d)                                 minus the Real Estate Purchase Tax Amount (as defined in the Merger Agreement); 

(e)                                  minus 50% of the Estimated State Income Tax Amount (as defined in the Merger Agreement), which Estimated State Tax Amount is limited to a maximum of $38 million;

(f)                                   minus the excess, if any, of the Estimated State Income Tax Amount over $38 million;

(g)                                  divided by 23,834,512, which reflects the aggregate number of shares of Common Stock that are issued and outstanding.

Without taking into consideration any net proceeds associated with the distribution, transfer or disposition of the Aruba Operations which is reflected in clause (c) above, the Company has estimated that the aggregate merger consideration, as adjusted to take into account the amounts set forth in clauses (d), (e) and (f) above, will be approximately $1.77 billion.

Couple things here, ERI is paying $640 in (a) and GLPI is paying $1.21B in (b) totaling up to $1.85B and from there we adjust down for taxes (there are NOLs at TPCA) but those are almost entirely offset by the expected sales price of the Aruba resort.  The footnote at the bottom, even if Aruba is valued at $0 then the total consideration is estimated at $1.77B or $74.26 per share, still a decent spread from today's price.

Tropicana Aruba is a fairly small operation, its a short walk from the beach (read: not beachfront) on 14 acres with 360 hotel rooms they've been renovating and converting into timeshare units over the past several years, there's also a 4000 sq ft casino property that mirrors what you see at a many Caribbean resorts.  In the financials, Aruba gets lumped in with their Baton Rouge and Greenville casinos making it difficult to determine what the property is worth, but at the $1.85B headline number its being valued at $80MM.  That feels high, but maybe I'm anchoring to the original thinking that Aruba was simply an option to build a larger property.

The deal is expected to close by the end of 2018, if we call the range of potential (positive) outcomes $74.26 - $77.61 on today's close of $69.75 that's a 6.5% - 11.2% absolute return in less than 9 months.  Unfortunately I sold last year into the tender, but given my comfort with the company and the attractive deal spread, I repurchased a position today.

From the buyers perspective, both are out touting the benefits of the transaction, GLPI is receiving $110MM annually in rent for their $1.21B investment for a 9.1% cap rate or 11x EV/EBITDA, and Eldorado is quoting a 6.6x pre-synergies (BYD is paying 6.25x for certain PNK/PENN casinos) and 5.0x post-synergies multiple on the operations that includes some net cash and cash build until close.  At 9.75x 2017 EBITDA of $190MM, Tropicana received a great deal (TPCA was trading at 4-4.5x EBITDA in 2013) that really touts the benefits of utilizing the REIT structure and its lower cost of capital to consolidate the industry.  But as someone invested in the gaming sector, is Icahn marking the top here?  He timed the cycle well pre-financial crisis, let's hope his timing isn't quite as perfect this time around and he has other motivations as it appears he's piling up cash throughout IEP.

Disclosure: I own shares of TPCA

Tropicana Entertainment: Buyback Plan Ramping, Tender Coming?

Tropicana Entertainment (TPCA) is the Icahn Enterprises (IEP) controlled regional gaming operator with 8 casinos and related hotels, bars, restaurants, and entertainment venues.  I've covered it a few times on the blog and have owned the stock since early 2013, to summarize the story:

• Carl Icahn (through IEP) owns 72.5% of the shares and has a solid track record of investing in gaming throughout the cycle.
• Given Icahn's ownership, Tropicana's free float available to the public is small and the shares trade rather infrequently on the pink sheets which limits the number and size of potential investors despite TPCA being an $810MM market cap company.
• Tropicana's balance sheet is unlevered with minimal net debt, fairly unique in the regional casino industry where most peers are heavily levered and its not uncommon to see leverage over 5-6x (especially when including operating leases).
• Tropicana's flagship casino is located in Atlantic City, a market that has seen a precipitous decline since the recession (which pushed Tropicana into bankruptcy) as competition has destroyed Atlantic City's once gambling monopoly on the east coast.  Since 2014, the number of casinos in Atlantic City has dropped from 12 to 7 with the latest casualty being Icahn (but not TPCA) owned Trump Taj Mahal which closed in October.  Tropicana has been able to capture increased market share in Atlantic City as a result of the closures and Caesars underinvesting there due to their prolonged bankruptcy.
• The shares trade at a significant discount to peers.

The 10-K was posted today, Tropicana doesn't host conference calls or issue press releases targeted at investors, so the SEC filings are really the only place to gain insight on the company.  Business results continue to steadily move along -- Tropicana primarily targets drive-in markets and focuses on slots as they have more consistent results and require less staffing, with the goal being more predictable results -- nothing in there was too worthy of an update until I got to the share repurchase section.

Share Repurchase Plan
Tropicana initiated a $50MM buyback program in July 2015, but given the limited free float and low trading volume it was a bit head scratcher to determine how the company would execute on that plan without significantly impacting the share price.  Over the following 15 months the company only purchased ~$6MM of shares, but then something happened during November and December of 2016, Tropicana bought over $37MM worth of shares at an average price of $27.62.  What changed?  The election?  Hard to tell, but given the undervaluation and how long the shares had been languishing around $15-18/share, it appears the company decided it should be its own catalyst.

Additionally, if you look at the fine print, on 2/22/17, the board authorized an additional $50MM buyback authorization for a total of $100MM, with about $57MM left remaining.

As of 12/31/16, there were 24,634,512 shares outstanding, of which Icahn Enterprises owns 17,862,706, so while the market cap is about $810MM, the free float is only $222MM, the remaining share repurchase authorization is then over 25% of the non-Icahn shares outstanding.  The company has $240MM in cash, more than the free float, the company could continue to buyback shares and effectively take itself private while bringing their capital structure more inline with peers as they go.

Icahn Enterprises each quarter puts out an indicative NAV, questionably they don't use the market value of their TPCA holding, but instead put a private market value on it given its low trading volume.

IEP marks their ownership in Tropicana at $877MM or $49/share which is 8.5x EBITDA as of 9/30, shares closed today at $32.90.  If Icahn believes in this valuation, continued share repurchases make a lot of sense and would be accretive to IEP's NAV.

While the stock price has about doubled over the past 12 months (now we know why) without a significant change in the business, given the company's appetite for their own shares, Tropicana Entertainment continues to be a very compelling opportunity.  At some point, I wouldn't be surprised to see Icahn Enterprises conduct a tender offer for the remaining shares like it recently did with Federal-Mogul.

Disclosure: I own shares of TPCA

Tropicana Entertainment is Still Cheap

It's been a little over a year since I've discussed Tropicana Entertainment on the blog and a lot has happened during that time, but you wouldn't know it if you look at TPCA's stock chart which has done almost nothing for two years now.  The illiquidity of the shares is a good mental exercise, it's the equivalent of investing in a private company and you need to look through the stock price feedback loop and analyze the results to determine how the company is really doing.  I've discussed Tropicana in the past (here and here), but to briefly recap it's the Carl Icahn controlled gaming company that emerged from bankruptcy in 2010.  The company owns 7 casinos mostly in drive up markets across the United States and a small temporary casino located in Aruba.  At this point the company is substantially undervalued as moves they've made are starting to pay off and troubles in the industry could yield future acquisition opportunities.

Atlantic City
Atlantic City has been a mess for years now, the root of the problems stems from increased competition along the east coast, particularly starting in 2006 when the first casino opened in Pennsylvania.  Previously Pennsylvania residents would travel across the border and spend money in Atlantic City casinos, now Pennsylvania has passed New Jersey to be the second largest gambling revenue state behind Nevada.  Maryland has a bunch of new casinos opening up too and Massachusetts just granted a couple casinos licenses, competition is not going to let up anytime soon, and thus the Atlantic City market has been forced to shrink dramatically.  We started 2014 with 12 casinos in Atlantic City, 4 casinos have closed so far (Trump Plaza, Revel, Showboat, and Atlantic Club) and the Trump Taj is likely to make it 5 when it finally shuts its doors in the next month or two (Icahn is Trump Entertainment's largest creditor).

The decreased competition has increased foot traffic at Tropicana's flagship Atlantic City casino and resort.  The company made a savvy purchase of Atlantic Club's patron database and gaming equipment that has led to increased slot customer volumes (the most predictable kind of gaming revenue).  While overall Atlantic City gaming revenue declined 9.3% across the city, Tropicana's casino revenues were up $21 million in Q3 2014 or 33% compared to Q3 2013.  New Jersey has also approved the use of $18.8 million in CRDA deposits (otherwise basically restricted cash) and $4.8MM in grant money through the New Jersey Economic Development Authority to invest in the Atlantic City casino, all in, Tropicana is going to spend nearly $40MM upgrading the property while weaker players have been putting off capex and exiting the market.  Previously seen a source of risk, the Tropicana Atlantic City has the potential to provide continued upside surprises as the AC market rebalances itself.

Another piece of good news happened this past January when the company received $32MM in cash as part of their property tax dispute with the city, previously it was going to be in the form of annual tax credits going out to 2017.  A lot of this money will go to upgrading the Atlantic City property, but it also skews the first quarter results so keep that in mind when running your own numbers. 

Real Estate Value
Most gaming companies have extensive real estate holdings, and in today's market that means activist pressure to re-evaluate capital structures and spinoff the real estate into a REIT.

• Penn Gaming (PENN) did a PropCo spinoff of their real estate assets in November 2013 which created Gaming & Leisure Properties Inc (GLPI), a REIT that triple net-leased backed the casinos to Penn Gaming and is pursuing additional acquisitions.
• Pinnacle Entertainment (PNK) announced plans to spinoff its real estate into a REIT on 11/6/14, activist Orange Capital had been pushing Pinnacle for a REIT conversion since Penn completed the GLPI transaction.
• Boyd Gaming (BYD), owner of the Borgata in Atlantic City, discussed the possibility of a REIT conversion on 10/30/14 and engaged Greenhill as an adviser.
• Caesars Entertainment (CZR) announced on 11/18/14 that they've approached their senior lenders about a plan to convert the company's 44 properties (including several in Atlantic City) into a REIT in order to help their over leveraged balance sheet.  Caesars is a distressed play at this point, and the REIT conversion would likely be part of a bankruptcy reorganization.

A REIT conversion is not an option for Tropicana (but maybe a sale leaseback?) as Icahn's controlling position would violate REIT ownership rules (no one can own more than 10%), but none the less exposes the value in their real estate and signals M&A activity in the sector.  Tropicana has a flexible balance sheet, with net debt of only 1x EBITDA, Tropicana has the ability to leverage up and potentially buy up weaker competitors or end up buying the operating casinos after they've split off the real estate.  As part of these REIT conversions, each company will be evaluating their casino portfolios and looking to sell assets that don't meet their new strategy for one reason or another.  I could see Tropicana as part of it's rollup strategy and strong balance sheet being a natural acquirer in 2015.

In addition to owning most of their casinos, Tropicana also owns some other real estate assets including the two luxury hotels in St. Louis that were part of their Lumiere purchase, the HoteLumiere and the Four Seasons, the replacement cost is likely in the $150-200MM range for the combination of the two.  They also own "The Quarter" adjacent to their Atlantic City casino, a 200,000 square foot Havana-themed mixed retail development featuring shopping, restaurants, nightclubs and an IMAX theatre, the development cost $285MM to build in 2004, even if its worth just a fraction of that, its still significant when compared to Tropicana's $520MM enterprise value.

Valuation
The best comparable private market value transaction is still the December 2012 purchase of Ameristar by Pinnacle Entertainment for $2.8 billion including the assumption of debt for a 8.4x EBITDA multiple.  But Icahn Enterprises (IEP) makes it a little easier coming up with a value by publishing a quarterly NAV estimate which gives a valuation for Tropicana at 7.5x EBITDA, about a turn lower than it's larger more liquid peers which seems appropriate.

At 7.5x EBITDA, Tropicana would be worth $27 per share, or about 80% higher than the $15 its trading for today.

Of course, we're tied to the hip with Icahn (plus its only a small fraction of IEP) as minority investors and might not see that valuation unless there's a liquidity event.  But I also think there's plenty of potential for additional upside, we might start to see improved wage growth in 2015, and in combination with lower gas/energy prices should increase discretionary incomes in Tropicana's middle class demographic market.  It might be a stretch, but just maybe with the economic recovery picking up steam, states and municipalities budget's could improve enough to not turn to casinos revenue to plug holes and restore some sanity to the competitive landscape.  Even if you have a more cynical view of the industry landscape, Tropicana's valuation provides a nice margin of safety with the benefit of having Carl Icahn, an experienced gaming investor, making the capital allocation decisions and hopefully unloading it at a cyclical top.

Disclosure: I own shares of TPCA

Tropicana Entertainment Buys Lumiere Place from Pinnacle

Tropicana Entertainment is the majority owned gambling unit of Icahn Enterprises that trades over the counter under the symbol TPCA.  The quick summary thesis is as follows: (1) Tropicana has a large net cash position, (2) Carl Icahn owns 68% of the company and has a strong track record in the gaming industry, (3) A small float and an OTC listing creates an opportunity for individual investors as its equity is ignored and illiquid, (4) the regional casino industry was over built in the 2000s and is generally unloved by investors.

Lumiere Place
On Friday, Tropicana used the majority of their net cash position and available liquidity to purchase the Lumiere Place casino and attached hotels/restaurants in downtown St. Louis from Pinnacle Entertainment for $260 million.  As part of the Pinnacle's purchase of Ameristar (for over 8x EBITDA), Pinnacle came to an agreement with the FTC to sell one of the combined Pinnacle/Ameristar's three casino properties in St. Louis that controlled 60% of the market share which was a concern for regulators.

Opened in the beginning of 2008 at the height of the casino building bubble, Lumiere Place is an upscale casino located across from the Edward Jones Dome and America's Center convention center near the Gateway Arch.  In addition to the 2000 slot machines and 68 table games, the Lumiere Place property includes two hotel properties in the Four Seasons Hotel St. Louis and the HoteLumiere, plus additional restaurant and retail space.  Pinnacle has positioned Lumiere Place as a luxury brand that is less focused on the slot/retail gambler and more focused on table games and non-gambling related revenue which is a departure from Tropicana's current core consumer (I believe should be seen as a positive).

Pinnacle Entertainment's Sept 2012 Investor Presentation

In total, approximately $600 million has been invested in the project since it opened 5 years ago, and its currently on the books for $401 million as of June 30th.  While Lumiere is probably worth far less than $600 million today, Tropicana clearly purchased it for less than replacement cost.  Pinnacle has previously disclosed an annualized EBITDA of $34 million for Lumiere, at a $260 million purchase price, the EV/EBITDA multiple is 7.5x, just below what the average casino operator is trading today of 8-9x.

Liquidity
As of 6/30, Tropicana had $241 million in cash and $170 million in debt, for a net cash position of $71 million.  The $13 million in interest payments on the term loan facility versus the minimal interest income from the cash has been a drag on earnings.  Tropicana has the option to increase their term loan by $75 million and has an used $15 million letter of credit facility giving it plenty of room to make the Lumiere purchase, but not a lot more given their annual capital expenditure needs (which currently roughly match cash flow from operations).  This purchase seems about the perfect size given Tropicana's balance sheet, meaningful but not a stretch.

Pro Forma Valuation
While I continue to think that the EV/EBITDA ratio is best for the gambling industry due to the varying capital structures, the purchase of Lumiere Place should also make Tropicana look cheaper on a more traditional P/E basis as the idle cash and term loan (which have a drag on earnings versus being cancelled out looking at it from an EV/EBITDA basis) will be invested in a productive income generating asset.

But looking at the "new" Tropicana, I come up with the following back of the envelope valuation:

EBITDA
Tropicana's current core = $84 million
Lumiere Place = $34 million
Total = $118 million

Enterprise Value
Market capitalization of the equity = $405 million
Net Debt = $189 million (current cash is $241 million, so take the $170 million in debt and add the additional $19 million)
Total = $593 million

EV/EBITDA = 5.02x

Icahn Enterprises currently values (for the purposes of their non-GAAP NAV) their 68% pre-Lumiere stake at $566 million, or 9x EBITDA.  Using that same 9x EBITDA valuation for the post-Lumiere Tropicana, and the equity should be valued at $873 million versus a market cap of $405 million today, so the market is giving you almost a 55% discount to become a minority shareholder in a company controlled by one of this era's top investors, seems like a good deal to me.

Disclosure: I own shares of TPCA

Summary of 1st Quarter Results

Instead of posting a whole series of short posts on the recent results of companies I've discussed on the blog, I thought I'd start summarizing and grouping my thoughts together.

American International Group
AIG posted first quarter results that the market absolutely loved, driving the stock price up considerably for a mega-cap name.  The big headline is AIG's combined ratio dropped below 100 for the quarter, meaning they're making an underwriting profit and not just relying on investment returns to drive profitability, which often leads to riskier investments.  This is significant because since 2005, AIG's P&C business has produced positive underwriting income in only two years (insurance expense has exceed premiums by about 4%).  AIG's Life and Retirement business also posted improved results, mainly as a result of the stock market performance in the first quarter driving up assets.  The improved housing market has also lifted their United Guaranty Corporation business, but with it being such a small piece of AIG, does it make sense to sell this unit or spin it off given the recent love for names like Radian?  I'm probably not smart enough to answer that question.

AIG's thesis is still intact, ROE is inching towards 10% and the book value is about $60 per share, the market price should keep grinding higher closer to book with the help of their debt reduction, stock repurchases, and the initiation of a dividend.

CEO Bob Benmosche appeared yesterday on CNBC to discuss their results, a few awkward Mario Rubio like water bottle moments aside it was a good interview.

Tropicana Entertainment
Tropicana posted relatively weak first quarter results citing continued negative impact from Hurricane Sandy at the Atlantic City property, company wide revenue was down over 8% compared to the same quarter in 2012, but net income was up as a result of their debt refinancing.  We know that gambling spending is down nationwide, but when will Hurricane Sandy no longer be a valid excuse and its instead its really just Atlantic City in terminal decline?  Tropicana also disclosed that in January they settled real estate tax appeals with Atlantic City.  Tropicana will receive $49.5 million in the form of future tax credits ending in 2017, a pretty significant number given AC revenues that should drop straight to the bottom line (the $49.5 million is front weighted towards 2013/2014).

Tropicana also announced an agreement to sell the River Palms hotel and casino for $7.0 million, with the closing happening in the third quarter.  $7.0 million sounds cheap to me for a 58,000 square foot casino, a hotel, and 35 acres of land, but Tropicana has been hinting at problems with the Laughlin market in the past and in particular with the River Palms operation, so it shouldn't have been a big surprise.

Overall, the thesis here hasn't changed, Tropicana's true value is being hidden by its low float and net cash position which should be used to either acquire or build new casinos.  Icahn Enterprises (IEP) has begun providing an Indicative Net Asset Value Calculation on their quarterly press releases; IEP raised its valuation metric from 8x EBITDA to 9x EBITDA, valuing its 67.9% stake at $551 million, making the entire company worth $811 million, or roughly $30 per share versus the $15.75 its trading at today.  But given its lack of liquidity, not a name for everyone.

Ultra Petroleum
No real surprises with Ultra Petroleum's results either, production dropped as they reduced capex throughout 2012 while waiting for gas prices to respond to a more normalized supply/demand environment, which is finally happening with prices now above $4.  The increase in gas prices have brought the PV-10 value of their reserves back up to $5.25 billion, but due to accounting rules, Ultra won't be able to reverse the write-downs on their balance sheet, but the assets are still there and quite valuable due to Ultra's low operating costs (cash flow margin @ 55%, net income margin @ 26%).

On the conference call there was more talk this quarter of looking to acquire an asset that would be a "third leg of the stool" to their Pinedale and Marcellus assets.  Ultra would use their free cash flow from 2013 and 2014, plus some additional debt to make the purchase, and they'd be agnostic to the commodity involved.  I'm a little torn on an acquisition, I think the market would like Ultra to make a more liquid rich purchase, but my thesis is based on Ultra being a pure play on natural gas and natural gas prices reverting to the mean.  Additionally, if Ultra's Pinedale field returns 40-60% IRR at $4 gas prices, why not focus on this property and return cash to shareholders by paying down debt?  Management has said they are a return focused, not a growth for growth's sake company, so hopefully any acquisition would have a high hurdle rate.

Disclosure: I own shares of AIG, TPCA, and UPL

Tropicana Entertainment

Tropicana Entertainment owns and operates seven regional casinos in the United States and one temporary casino located in Aruba (Tropicana Las Vegas is owned by a separate entity).  Tropicana's predecessors went bankrupt in 2008, and Carl Icahn bought it out of bankruptcy in 2010, he now owns 67.89% of the outstanding shares through Icahn Enterprises (IEP).  Icahn seems to be everywhere lately and by now everyone has seen his confrontation with Pershing Square's Bill Ackman (also the Chairman of HHC) on CNBC, while Icahn ended up looking a bit foolish, it's hard to argue with his track record as an investor.  He's been particularly successful in the casino business.  For example in 2007 he sold American Casino & Entertainment Properties to Whitehall (Goldman's real estate funds) for $1.3 billion (Icahn paid $300 million), perfectly timed at the top of the market, and the casino operator has run into trouble ever since due to a heavy debt load put on it by Whitehall.  Could he do something similar with Tropicana?

Times have certainly changed, the company's largest casino is the Tropicana Casino and Resort located in the troubled Atlantic City market.  Atlantic City has been in a long term decline and now faces increased competition from neighboring states who are rushing to legalize gambling in an effort to shore up their state's finances with gaming tax revenue.  In the past Atlantic City marketed itself a destination resort for the northeastern corridor, but now with casinos popping up throughout the region, it should be considered just another drive-up market.  Unfortunately, a drive-up market with 12 casinos.

Tropicana's casinos in other markets also face increased competition from the proliferation of both commercial and native american casinos across the country.  Several states, including New Jersey, are creating legislation to legalize online gambling, creating yet another source of competition for regional casinos that don't have the non-gaming draw of Las Vegas or other destination resorts.

Below is a list of Tropicana's casinos (minus the temporary one in Aruba) which are located in markets where they primarily draw their revenue from repeat type customers who are within driving distance:

• Tropicana Casino and Resort (Atlantic City, NJ)
• Casino Aztar (Evansville, IN)
• Tropicana Laughlin Hotel and Casino (Laughlin, NV)
• River Palms Hotel and Casino (Laughlin, NV)
• MontBleu Casino Resort & Spa (Lake Tahoe, NV)
• Belle of Baton Rouge (Baton Rouge, LA)
• Trop Casino Greenville (Greenville, MS)
• Tropicana Aruba Resort & Casino (Noord, Aruba)

Tropicana does not have exposure to the Macau market like a lot of its larger peers; the Macau market continues to grow and now dwarfs the revenue of Las Vegas.  On the positive side, Tropicana emphasizes slot play, versus table games at larger destination resort casinos, leading often to higher margins and more consistent revenue (less luck).

Given the industry challenges, Tropicana doesn't deserve a market premium, but how cheap is the company?

Balance Sheet and Debt Refinancing
In the first quarter of 2012, Tropicana refinanced it's original credit facility and replaced it with a $175 million term loan from UBS as well as a letter of credit facility.  The new loan terms are LIBOR based with a 7.50% floor, which is the current rate based on today's interest rate environment.  The new loan facility replaces one financed by an affiliate of Icahn with a whopping 15% rate, so starting in the second quarter of 2012 you see a dramatic improvement in the company's interest expense and thus cash flow.

Tropicana now has a strong balance sheet with $242 million in cash, only $170 million in long term debt (rare in the casino industry), and it sells for only 70% of book value.  Not that anyone is eager to build casinos in the current environment, but many of Tropicana's properties are on the books for far less than replacement value giving the book value measure some creditability.  Tropicana has some plans for the excess cash, including capital expenditures of $30-40 million to renovate existing casinos and potential construction and development costs related Tropicana's planned permanent casino in Aruba, which could be highly accretive to shareholders.

Valuation
In December 2012, Pinnacle Entertainment agreed to buy Ameristar for $869 million plus $1.9 billion in assumed debt, pegging Ameristar's enterprise value at $2.8 billion.  Both Pinnacle and Ameristar are regional casino players, so this transaction should be a perfect comparable for valuing Tropicana.  Since Tropicana has a much different capital structure than Ameristar, EV/EBITDA is probably the best multiple to use as its debt neutral, on that metric Pinnacle paid 8.37x (2.8B/334.45MM) for Ameristar.

In 2012, despite a unprofitable 4th quarter (partially seasonality, partially Sandy) Tropicana managed an EBITDA of $84 million and an enterprise value of $348 million ($421 million market cap minus $72 million of net cash), for a EV/EBITDA multiple of 4.13, or roughly half what Pinnacle paid for Ameristar.

Why is it cheap?  Well other than the already discussed over saturation of the industry, Tropicana trades over the counter and has a limited number of holders (only 41 holders of record) with a controlling shareholder.  Often after bankruptcy, the new equity ends up in the hands of the former creditors, in this case Ares through their management of a long list of CLOs.  CLOs are not a natural holder of equity securities (need cash flow), typically they get them post default and can only hold a limited portion of their portfolio in equities or must sell them following a certain timeframe (sometimes 1 year, sometimes 3).  So it will be interesting to see what Ares ends up doing with their shares, if Icahn wants to scoop up more shares in an efficient manner, its likely he'd buy them from Ares.  Given the limited liquidity, most institutions pass on Tropicana as they are unable to build a position large enough to move the needle, and other investors are precluded from investing in casino operators due to morality clauses in their investment policy statements.  I like to invest in companies like this, overlooked by most investors for reasons other than their performance and future prospects.

Catalysts
I see a few potential catalysts for Tropicana:

• Internet Gaming: NJ Governor Chris Christie seems committed to seeing that Atlantic City's turnaround succeeds, and is pushing through legislation that would allow for NJ casino operators to conduct online gambling in late 2013 or early 2014.  I've yet to see Tropicana's plans for an online gambling operation, but competitor Caesars seems out ahead of the curve (probably because they're debt load makes them desperate).
• Acquisitions/Capital Expenditures: Tropicana has plenty of cash on the balance sheet and a huge line of credit that was recently opened, presumably this was done to renovate existing casino assets to make them more competitive and strategically pick up struggling casinos on the cheap as less well capitalized competitors get washed out.  Capital expenditures could lead to greater foot traffic and revenue, but its a difficult game to play as each competitor tries to one up each other.
• Outright Sale: Carl Icahn is always looking to do a deal, and has already shown his ability to flip casino assets in the past at a good price.
• Leveraged Recapitalization:  Similar to what Carl Icahn is proposing at Dell, Tropicana could use their cash and draw on their credit facility to pay a special dividend to shareholders and leverage up the business if they don't find any profitable acquisitions or cap ex projects.
• Improved Sentiment: With sentiment so poor, especially for Atlantic City casinos, any improvement in investor sentiment could send Tropicana's shares higher.  Additionally, with the wealth effect in full swing as housing and stock prices increase, consumers may increase their discretionary and entertainment spending.

I view Tropicana in a similar way as Asta Funding (both are fairly small positions for me), previously a distressed company that has a little too much cash and operating in disliked seedy industry without a clear strategy.  But like Asta, Tropicana is very cheap and the large net cash position limits the downside.

Disclosure: I own shares of TPCA