Shareholder group seeks changes in casino operator Full House Resorts

A group of shareholders in casino operator Full House Resorts is seeking a special stockholders meeting to remake the Las Vegas-based company’s board of directors.

In a filing Thursday with the U.S. Securities and Exchange Commission, the group — led by former Pinnacle Entertainment CEO Dan Lee — said the company “has failed stockholders” and needs to replace its board and management team.

Full House owns three casinos: one in Indiana, one in Mississippi and the Stockman’s Casino in Fallon. The company also manages the Grand Lodge Casino at Hyatt Regency Lake Tahoe under a lease agreement. In September, the company’s management contract for an Indian casino in New Mexico ended.

In a statement, the stockholder group, which owns 6.2 percent of the company’s outstanding shares, said it wants to elect five new members to the company’s board.

“The company has gone on a reckless buying binge, overpaying for three shrinking casinos and pursuing two hotel additions that have marginal returns,” said Lee, a gaming industry veteran who also served as chief financial officer of Steve Wynn’s Mirage Resorts.

In the SEC filing, the shareholders outlined covenant defaults that led to a loan modification at a higher interest rate.

Lee and his group criticized a failed attempt by Full House to purchase a Tunica, Miss., casino this year in which the company lost more than 97 percent of $1.75 million escrow account and spent $300,000 in professional fees associated with the transaction.

They said, however, that the company has upside.

The five shareholders include former Boyd Gaming Corp. Chief Financial Officer Ellis Landau, who is president of the holding company that owns the Aliante Casino in North Las Vegas.

Full House Resorts could not be reached for comment.

In a letter to Full House shareholders, the group said the company’s shares, which are traded on Nasdaq, fell almost 59 percent between September 2013 and September 2014.

They also criticized the leadership of Full House Chairman and CEO Andre Hilliou and the compensation paid to management. Hilliou has seen his compensation increase 50 percent in five years and Chief Operating Officer Mark Miller has grown his compensation 78 percent.

Macquarie Securities gaming analyst Chad Beynon said he held marketing meetings last week between Full House executives and investors.

“Certainly (we) sensed tension with shareholders and management, mainly around the key issues that are being addressed in this letter,” Beynon said.

The analyst said shareholders questioned the company’s purchase of the Indiana casino for $43 million in April 2001. In the last 12 months, the casino produced $2 million in cash flow.

“We are not completely surprised for investors to be taking more of an activist role,” Beynon said.

Full House is part of two casino proposals in upstate New York.

According to Full House’s second-quarter earnings statement, the company lost $8.5 million in the three-month period that ended June 30.

Lee said Full House has “borrowed recklessly and has not invested the money well.” He said the company needs more experience and independence in the board.

“It is hard to imagine a more irresponsible stewardship of shareholder money than we have seen at Full House Resorts,” Lee said. “Shareholders could lose more or all of their investment if the company continues on its recent course.”

According to Fantini Gaming Research, the largest shareholders in Full House as of June 30 were RMB Capital at 8.93 percent, Franklin Resources at 7.68 percent and Perritt Capital Management at 6.94 percent.

Lee’s group needs SEC approval to approach Full House stockholders. The proxy fight will need 40 percent approval from shareholders to schedule a vote.

Full House was founded in 1992. One of the original partners is automobile industry leader Lee Iacocca, who appeared with company executives in front of Nevada gaming regulators in 2007.

Full House Resorts shares gained 4 cents, or 3.36 percent, Thursday to close at $1.23. About 55,000 shares traded hands, roughly 90 percent of normal volume. The share price has ranged from 87 cents to $3.03 over the last 52 weeks.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.