Riviera board explains rejection of investor proposal in open letter to stockholders

By Lisa Kerner

Charlotte, N.C., April 5 - Riviera Holdings Corp. board chairman William L. Westerman, in an open letter to company stockholders, explained that the board's rejection of Riv Acquisition Holdings Inc.'s merger proposal involves more than company bylaws and Nevada takeover laws.

The Las Vegas hotel company has received reaction from a number of shareholders following its rejection of the $27.00-per-share offer made on March 26.

Riviera's board initially said it could not consider the merger proposal because Riv Acquisition Holdings entered into a lockup and option agreement for 9.2% of Riviera's outstanding stock held by Triple Five Investco LLC and Dominion Financial LLC without prior approval by Riviera's board.

"Before Riv Acquisition entered into a lockup and option agreement on March 21 with certain key shareholders who own 9.2% of our stock, we had informed Riv Acquisition on a number of occasions that we would oppose any attempts on their part to lockup any of our shares that they did not already own," the letter stated.

Prior to the lockup agreement, Riv Acquisition's related parties owned 18.4% of Riviera's stock. The lockup would give Riv Acquisition control over 27.6% of Riviera's stock.

"Given that an acquisition of our company through a merger would require approval by holders of at least 60% of our stock, Riv Acquisition's control over 27.6% could easily have a 'chilling effect' on our shareholders' ability to get a higher price through competing acquisition offers," Westerman said in the letter.

Riviera's board said that Riv Acquisition's proposed tender offer structure "would have enabled each individual stockholder to evaluate Riv Acquisition's price in light of all relevant factors" and perhaps triggered higher bidders.

Instead, Riv Acquisition opted to end the tender offer approach and pushed for a merger agreement that the board found unsatisfactory.

Westerman added that "We see the major transformation occurring on the Strip just outside our doors, and we understand that, in all likelihood, Riviera at some point will not be impervious to this transformation."

"If and when the time comes for us to support an acquisition proposal, you can be sure that such a proposal will not be the result of an unfair bargaining position that we gave one particular bidder over other credible bidders."

In response, Riv Acquisition asked the company to let its shareholders decide the merger proposal. The investor group said in a previous news release that it had acquired all of the stock previously owned by Riviera's chairman and chief executive officer at $15.00 per share and previously entered into a board-approved merger agreement with Riviera at a price of $17.00 per share.

Riv Acquisition consists of Paul C. Kanavos and Robert Sillerman, the managing members of New York-based Flag Luxury Properties, LLC; Las Vegas developer Brett Torino and Starwood Capital Group chairman and chief executive officer Barry Sternlicht.

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