Golden Entertainment: PropCo OpCo Split, Insufficient MBO Offer

Golden Entertainment (GDEN) (~$780MM market cap) is a regional casino operator primarily focused on the drive-to regional market, their flagship asset is the STRAT Hotel (fka the Stratosphere) focused on value oriented customers that opened in 1979 on the very north end of the strip.  The rest of their assets cater to the locals markets in Las Vegas, Laughlin and Pahrump (town 60 miles west of Las Vegas where prostitution is legal), plus 72 taverns in the Las Vegas area functioning as mini-casinos with slot machine gaming being the primary draw.  GDEN is one of the few remaining regional casino operators that still owns the majority of its real estate, most of the others have sold theirs to the gaming REITs.

On 11/6/25, after a long strategic alternatives process, Golden Entertainment announced a deal to sell their real estate in a sale-leaseback transaction to gaming REIT giant VICI Properties (VICI) (VICI was originally a 2017 spin of CZR, but has since diversified into other entertainment asset classes) while their OpCo is going private via an MBO transaction with CEO Blake Sartini (who founded GDEN ~30 years ago).  VICI is buying the real estate of 7 of the 8 casinos (the 8th is already leased to a third party) at a 7.5% cap rate, with the initial annualized rent set at $87MM. GDEN shareholders are to receive 0.902 VICI shares for each share of GDEN (at today's VICI share price, that's $26.39/share) plus $2.75 in cash for the OpCo ($29.15 total versus $29.65 GDEN's share price today).  On a trailing basis, GDEN has done $145.7MM in EBITDA over the last twelve months (this is now EBITDAR in Casino OpCo talk), subtracting out the new annualized rent equals ~$59MM in EBITDA, the $2.75/share represents $75MM, GDEN has some net cash after VICI assumes the debt, so Sartini is paying around ~1x EBITDA for the OpCo.

This low-ball offer has attracted the ire of two activists, friend of the blog Andrew Walker at Rangeley Capital wrote up a public letter and EverBay Capital has also express dismay at the offer for the OpCo being too low (additionally, Dalius @ Special Situation Investments has a great write-up, paywalled, but worth the sub).  I'll try not to rehash their arguments, but a couple additional thoughts and historical context I'd add:

• The transaction as currently structured reminds me of when Tropicana Entertainment (TPCA) simultaneously sold their real estate and OpCo to Gaming & Leisure Properties (GLPI) and Eldorado Resorts (ERI, now part of CZR) respectively in 2018.  TPCA was similarly a lower quality regional casino operator, had some tired properties, including some overlap with GDEN in Laughlin, NV.  Eldorado paid a pre-synergies 6.6x EBITDA (5.0x post synergies) for the OpCo, it could be argued TPCA's assets were slightly higher quality than GDEN, however GLPI paid a 9.1% cap rate for the real estate, the cost of capital for the gaming REITs has tightened since 2018, but still points to the GDEN OpCo being worth more than ~1x EBITDA.
• The activists are pushing to separate the selling of the two pieces, if GDEN did this, it would remind me a bit of when Pinnacle Entertainment (PNK) sold their real estate to GLPI in 2016 and spun the OpCo out as new Pinnacle.  After the spin it initially traded around 6x EBITDA (higher quality assets), and went on to double in the next year before eventually being acquired by PENN.  Tax rules have changed regarding REIT conversions and real estate spins, not sure if its still a possible structure, but again, points to the GDEN OpCo being worth more than ~1x EBITDA.
• The tavern business GDEN is not a throw away asset, GDEN previously ran a distributed gaming business in Nevada and Montana that were sold in 2023 to Illinois based J&J Gaming (a peer of publicly traded Accel Entertainment (ACEL)) for 9x EBITDA.  Distributed gaming is the better half of the business (GDEN has the capex, lease obligations, staffing etc), but J&J shares the slot-machine revenue with GDEN.  The taverns do $25MM in EBITDA, its probably worth at least 3-4x EBITDA (finger in the air, small business type multiple), or the entire check Sartini is writing.
• Others have mentioned the undeveloped land as a potential value nugget, but with the current oversupply on the strip (where 9 acres are located near the STRAT) and a majority of the rest being located in Pahrump, I don't see a lot of value in the excess land.

There's a go-shop ending on 12/5/25, but it's unlikely to draw new bidders unless someone can partner with GLPI on a better proposal (unlikely that someone would be able to pay a higher price for the whole thing without a REIT partner).  There's no minority of the majority vote here, management owns 30%, hopefully minority investors can shame Sartini into a bump.  There's minimal downside other than opportunity cost as the stock trades close to the merger consideration and GDEN will continue to pay a $0.25/share quarterly dividend, the merger is expected to close mid-2026.

Disclosure: I own shares of GDEN

Light & Wonder: Moving Primary Listing to ASX

Light & Wonder (LNW) ($6.5B market cap, $11.3B EV) is a Las Vegas based maker of video gaming terminals, shuffle machines, other table products, etc., plus they now own 100% of SciPlay (SCPL) after the 2023 buyout and have a growing iGaming unit.  This is the old Scientific Games (SGMS), they sold their lottery business to Brookfield (BN) in 2022 for $5.8B and the name went with the lottery business.  

Light & Wonder is undertaking a strange move, the company is currently traded in both Australia on the ASX (which they only added  as a secondary listing in 2023) and the U.S. on the NASDAQ, but after 11/12/25 (this coming Wednesday) the shares will be delisted from the NASDAQ, any remaining shares trading on the NASDAQ will move to OTC.  A popular strategy in recent years to increase your multiple has been to move listings to the U.S., but here Light & Wonder is doing the reverse which piqued my interest.  This is a global company, 2/3rds of their workforce is overseas, but only 5% of their revenue is generated from Australia, why pick Australia?  In the company's own words:

Rationale

The decision to transition to a sole ASX primary listing reflects Light & Wonder’s strategic focus on aligning our capital markets presence with our long-term growth plans and shareholder base. We are seeking to consolidate trading liquidity onto the ASX, a deep and liquid market that has a robust understanding of the gaming sector.

Translation: Multiples for gaming companies tend to be higher in Australia, for example, The Lottery Corporation (ASX: TLC) trades for 20x EBITDA, Brightstar (BRSL) trades for 7x EBITDA in the U.S., there some moving parts in there that may account for some of the difference, but they're largely similar businesses.  Light & Wonder's closest peer, industry leader Aristocrat (ASX: ALL) trades for 14x NTM EBITDA, while LNW trades for 8x.  Aristocrat has no net debt and is significantly larger, probably deserves to trade at some premium to LNW, but there's room for LNW's multiple to expand.

The next few days will likely have some volatility, there could be some forced selling in the U.S. as indices kick LNW out and then on the other end, forced buying as Australian indices include LNW.  Additionally, LNW is accelerating its buyback, "we expect to utilize a meaningful share of the remaining available $735MM capacity prior to the end of 2025."  Hard to tell how this will all shake out in the near term.

I posed the idea on Twitter/X and received a couple thoughtful responses:

I bought a tracker position last week, might increase it depending on what happens.  Keep in mind if you buy shares on the NASDAQ, you'll have to get in touch with your broker quickly and convert the shares to the ASX (they won't automatically) otherwise be stuck with shares that trade over-the-counter.

Disclosure: I own shares of LNW

Sotherly Hotels: Buyout, Preferred Share Conversion Arbitrage

Sotherly Hotels (SOHO) (~$108MM fully converted market cap) is a lodging REIT with 10 hotel properties located primarily in the southeastern part of the United States.  The REIT is technically internally managed but each of the hotels is under a management agreement (remember, lodging REITs can't actually manage their hotels' operations) with a related party owned by the management team creating a conflict of interest.  For that reason and others, SOHO has typically traded at a discount to peers.  Their hotels:

On 10/27, Sotherly Hotels announced they are being acquired for $2.25 by a JV between Kemmons Wilsons Hospitality Partners and Ascendant Capital with Apollo Global (APO) and Ascendant providing financing for the deal.  Like other REITs with conflicts that trade at a discount, SOHO funded itself with preferred stock classes publicly traded under the tickers SOHOB, SOHOO and SOHON (for purposes of the merger, it doesn't really matter which one you own).  These classes of preferred stock all have provisions that allow holders to convert their shares to common in the case of a change of control, however, there's a catch in the form of a share cap (BHR's prefs have these too):

Upon a change of control (as defined in our charter), holders of our Preferred Stock will have the right (unless, as provided in our charter, we have provided or provide notice of our election to exercise our special optional redemption right before the relevant date) to convert some or all of their shares of preferred stock into shares of our common stock (or equivalent value of alternative consideration). Upon such a conversion, holders will be limited to a maximum number of shares equal to the share cap, subject to adjustments. Each holder of Series B Preferred Stock is entitled to receive a maximum of 8.29187 shares of our common stock per share of Series B Preferred Stock, which may result in the holder receiving value that is less than the liquidation preference of the Series B Preferred Stock. Each holders of Series C Preferred Stock is entitled to receive a maximum of 8.50340 shares of our common stock per share of Series C Preferred Stock, which may result in the holder receiving value that is less than the liquidation preference of the Series C Preferred Stock. Each holder of Series D Preferred Stock is entitled to receive a maximum of 7.39645 shares of our common stock per share of Series D Preferred Stock, which may result in the holder receiving value that is less than the liquidation preference of the Series D Preferred Stock. In addition, those features of our Preferred Stock may have the effect of inhibiting or discouraging a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change in control of our Company under circumstances that otherwise could provide the holders of shares of our common stock and shares of our Preferred Stock with the opportunity to realize a premium over the then current market price or that stockholders may otherwise believe is in their best interests.

There is a little more work involved here, you'll have to call your brokerage firm and elect to convert your preferred shares to common after the merger (if you don't, you'll get orphaned).  

Notice to Holders of Preferred Stock

 

With respect to each series of the Company Preferred Stock, pursuant to the Charter, the Company will, within 15 days after the closing of the Merger, provide notice to the holders thereof that the closing of the Merger has occurred (the “Preferred Notice”). The Preferred Notice will include certain details with respect to the Merger and specify a date (to be no less than 20 days nor more than 35 days after the date of the Preferred Notice) by which the holders of the Company Preferred Stock may elect to exercise a right to convert some or all of the Company Preferred Stock held by such holder into the right to convert, subject to the terms and conditions contained in the Charter, including the share cap as defined therein, into Company Common Stock and receive the Per Company Share Merger Consideration.

The common stock trades at only a 12% IRR spread (assuming the deal closes 3/31, in the press release they guided to a Q1 close) indicating the risk of this not closing is pretty low (solid financing, pretty cheap price being paid too) given the illiquidity premium a micro cap arb situation deserves.  The spread on the preferred shares is much wider (I'm still using a 3/31 close date, if you want to get more exact, include a delay for the conversion to close):

Why might this be?  The preferreds are likely held by retail holders, they're relatively illiquid, there's an extra step involved and preferreds notoriously get screwed in deals like this one.  Related, the company has deferred the previously announced Q4 preferred dividend and is suspending future preferred dividends, already creating friction.  This is one you'll need to monitor and not forget, the buyers are incentivized to make converting your shares difficult.  But at a 30+% IRR, seems like a pretty attractive risk/return to me. 

Disclosure: I own shares of SOHOB and SOHOO (just which ones my buy order filled, again, doesn't really matter which class you pick)

Catching Knives w/ FI, FWRD & JEF

Quick update, I've been quiet for a bit, maybe due to some writer's block, maybe because I continue to underperform the market by an embarrassing amount.  Clearly, I've missed the recent big market trends, but even in my niche I've underperformed, just feels like playing a game of Battleship where you're just missing the targets.  Anyway, here are a few new tracker positions I've taken where I admittedly have few original thoughts to add to the greater market zeitgeist.

Three new tracker positions:

Fiserv (FI) ($35.4B market cap, $65.7B enterprise value) is a large legacy merchant acceptance business (the old First Data) paired with a decent but no-growth core account software provider to small and medium sized community banks.  These types of legacy fintech businesses usually have poor reputations with their clients, the view is they've levered up and no longer invest in their product or innovate, rather they rest on their laurels knowing their products are sticky and generally not worth the risk of transitioning away to a new provider.  Fiserv apparently pushed that narrative to the extreme and clients are fighting back on extra fees attached to their Clover product (point of sale device, plus a software platform for small businesses) bringing their previously issued guidance into question.  New CEO, Mike Lyons (joined from PNC, former CEO Fran Bisignano left to join the Trump Administration running SSA and the IRS) pressed the reset button on the company's strategy, management team (hiring new co-presidents for each business segment and a new CFO) and guidance.  Shares dropped roughly in half last week, quite shocking for an real business and S&P 500 component.  

Investor trust has been broken for now, but the reset seems to be the right strategy for the long term (?), this is still a non-discretionary product that should trade for more than ~7.5x adjusted earnings (much of the adjustment is non-cash amortization expense from the First Data merger).  Fiserv has historically been a levered equity buyback story, hopefully they continue to buyback shares down here (they bought back $6.7B in the last twelves months at significantly higher prices) and avoid the trap of management teams hoarding cash just when the stock becomes cheap.

Forward Air (FWRD) ($730MM market cap, $2.4B enterprise value) is primarily an asset-lite (relies on independent contract drivers) less-than-truckload transportation services provider that historically had a nice niche in airport-to-airport routes.  They diversified through acquisitions over the years to include truckload, intermodal drayage (between ports/railyards and other points in the supply chain) services and most recently with their ill-fated acquisition of Omni Logistics, a 3PL service provider.  The Omni Logistics acquisition, announced in 2023 but closed in early 2024, was done at peak post-covid earnings and a peak multiple of 18x EBITDA (which was higher than FWRD's multiple at the time).  The market hated the acquisition from the start, crashing the stock, Forward Air management tried to backout of the transaction but eventually closed it with a small price cut.

In January, Forward Air announced it was conducting a strategic review, there have been reports of multiple (5-6 financial buyers) bidders being interested including Clearlake Capital Group which owns a 12.6% stake in the business.  The strategic process is long in the tooth at this point, Axios recently reported the process is at an impasse due to a wide bid-ask spread.  Shares have traded down as the market seems skeptical of a deal happening, but a turnaround effort is probably best conducted in private hands and activist shareholders will continue to pressure management to sell.  I'm hoping a deal can still be reached as the company has yet to call off the sale process, despite the Axios report being a couple weeks old now.

There's quite a bit of debt on FWRD, it's on the riskier side, but at $18.25/share, its trading at 7.7x consensus NTM EBITDA of $315MM.  Tariffs and supply chain disruptions, plus a general shipping recession is a concern, but on more normalized earnings, this business is even cheaper and could be a home run for a PE buyer.

Jefferies Financial Group (JEF) ($10.8B market cap) is the largest non-bank holdco investment bank in the U.S. which was recently ensnarled in the First Brands bankruptcy.  For those outside of the leveraged finance space, First Brands is a privately held (and non-PE sponsor) rollup of auto parts products that recently went bankrupt after a refinancing of their term loan was paused due to a non-receipt of a quality of earnings report and subsequently the company stopped making payments on their factoring debt.  There's some whiffs of fraud here, First Brands potentially pledged the same receivables multiple times and used a lot of off balance sheet financing that was only weakly disclosed to their term loan lenders (although if credit analysts looked at the cashflow statement, could see that something was off).  Jefferies was First Brands' banker on the failed term loan refinancing and a fund managed by Jefferies was overly exposed to the factoring debt, causing into question the level of due diligence they performed prior to the engagement.  

In the wake of the news, people started comparing Jefferies to B. Riley (RILY) and other runs on financial institutions, but this situation seems pretty contained, Jefferies has limited actual exposure to First Brands and the market will likely forget about it in a quarter or two.  Unlike the other two above, Jefferies isn't as absolutely cheap at 13.5x forward consensus earnings for a cyclical business, but with the continued tailwinds of increased M&A and open credit markets, hard to see this situation (unless you disagree that its a one-off) having a lasting impact.

Disclosure: I own shares of FI, FWRD, JEF