Aztar Corporation - The Late 1980s Restructuring of Ramada

The Late 1980s Restructuring of Ramada

The late 1980s were difficult years for Ramada Inc. as increased competition in the hotel industry led to declining profits and, ultimately, losses. The company posted profits of $17.2 million in 1985, $10.3 million in 1986, and $4.9 million in 1987. On the way to posting a $5.1 million loss in 1988, the company decided in October of that year to restructure by selling its restaurant and hotel groups and retaining only its gaming operations, deemed by company officials as the Ramada assets with the best future. The restructuring was also undertaken to prevent a hostile takeover that the company felt was "grossly inadequate from a financial standpoint." Ramada sold its 152-restaurant Marie Callender chain early in 1989 to the Wilshire Restaurant Group Inc. for $54.5 million. It then reached agreement with New World Hotel (Holdings) Ltd. of Hong Kong to sell all of its hotel operations, including more than 800 hotels and motor inns worldwide, and the Ramada name for $540 million. New World's price included $280 million to be paid to Ramada shareholders and the assumption of approximately $260 million of Ramada's debt.

Before the New World deal could be consummated, a complicated restructuring had to occur, including a new financing plan, and approvals had to be granted by Ramada's shareholders and the gaming regulators of New Jersey and Nevada. The approval process occurred twice because the initial restructuring arrangement was changed because of a downturn in the junk bond market. The original plan had Aztar raising $400 million through the issuance of $230 million in junk bonds and $170 million in first-mortgage notes backed by the company's TropWorld Casino in Atlantic City. The revised plan dropped the junk bonds altogether. It also reduced the amount paid to Ramada shareholders from $7 per share to $1 (but the shareholders would receive one share of Aztar stock for each share of Ramada stock instead of a half-share) and Aztar's initial debt load from $423 million to $189 million. Experts on gaming companies viewed the revised plan as a much healthier one for the new company because they believed $423 million was too great of an initial debt for the company to handle through casino revenues.

The restructured company was to be run by former senior managers of Ramada and its gaming division, including Richard Snell (who was chairman, president, and chief executive of Ramada and became chairman and chief executive of Aztar), Paul E. Rubeli (executive vice-president and head of Ramada's gaming division, who became president and chief operating officer of Aztar), and Robert M. Haddock (who retained the same title with Aztar that he held with Ramada—executive vice-president and chief financial officer). Aztar's board was initially composed of nine former Ramada directors, with Haddock filling in the tenth slot that had been vacated. In December 1989 the revised plan was approved overwhelmingly by Ramada shareholders. The gaming regulators of Nevada and New Jersey also approved the plan that month, leading to the closing of the hotel sale. The new Aztar Corporation was born, with a name coined to play on the word "star" combined with the beginning of the word "Aztec," a reference to the gold- and silver-rich Aztec Empire, whose wealth the new gaming company wished to strive for. Aztar's headquarters remained in Ramada's main office in Phoenix. (The first two initials of the new company name were said to be only coincidentally the same as the two-letter postal abbreviation for Arizona.)