Corporate governance in an IPO reflects the value current owners place on investment from outside investors. Red Rock’s current owners have chosen second-class status for new public investors in their company. Will you choose to be a second-class shareholder?
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As one gaming analyst recently said about the Red Rock Resorts IPO, “there is going to be an appetite for them to grow.” However, economic conditions in Las Vegas and little revenue growth by Red Rock suggest hungry investors might not find the company very appetizing, especially as they see company insiders planning to take out a substantial amount of cash concurrent with the IPO.
As currently proposed, the Red Rock Resorts IPO will result in the Fertitta family taking substantial sums from the company, retaining control for the long term through super voting rights, and shifting risks in its current structure to new public investors. The complicated IPO thus presents prospective investors with an unappealing proposition.
Red Rock Resorts Inc. is the new name of Station Casinos Corp. and the vehicle for Station Casinos’ return to the public market. Station Casinos registered the domain name “redrockresortsinc.com”, but it does not currently direct to a live website. The more obvious domain name for the company, “redrockresorts.com”, has been taken by someone else.
We have previously communicated our concern that it is dangerous to allow a parent company of a felon to go unlicensed while profiting from Nevada casinos and have asked the Board and Commission to call Deutsche Bank forward for a suitability review. Now that Deutsche Bank is set to own voting rights, we believe this only furthers the need for a suitability review.
We ask the Commission to consider three specific amendments to Rule 3-05. We have arrived at our suggestions after reviewing recent filings by Station Casinos LLC and Station Casinos Corp. We think investors would find it difficult to evaluate the proposed $460-million purchase price of Fertitta Entertainment LLC as neither registrant has provided historical financials of the target.
Last week, news broke that Fidelity, the mutual fund giant, had lowered its valuation of Snapchat Inc., the video messaging app company, by 25%. The story got us thinking about how much Fidelity values Station Casinos LLC, of which it owns 8.7%. Fidelity’s valuation would provide a useful baseline for prospective investors in the Station Casinos IPO.