Africa and Aboriginal Tuesdays: Will Seminole's Deal Spur Indian Bidding? by Eamon Javers

With its $965 million deal to acquire the Hard Rock Cafe restaurant and casino chain from the British company Rank Group, the Seminole tribe is on the vanguard of what could be a rash of new investment from cash-flush Native American tribes.

Gambling has been very, very good to the tribe, which traces its history in Florida back 12,000 years. Seminole Gaming CEO James Allen says the tribe's Hard Rock Cafe-branded properties in Tampa, Fla., and Hollywood, Fla., are two of the most successful casinos anywhere in the world. Plus, he says the 3,100 member tribe has diversified its business operations, becoming the seventh-largest producer of cattle in the U.S., Florida's largest tobacco seller, and one of the state's largest citrus producers. The tribe has an investment grade [BBB-] rating from Standard & Poor's.

Buying Back Manhattan

Because it is a sovereign entity, the Seminoles won't reveal details of its finances. But insiders say the two casinos bring in revenues of nearly $1 billion a year. According to the National Indian Gaming Commission, tribal gambling nationally grew from a $5.5 billion industry in 1995 to a $19.5 billion industry in 2004. With all that money, industry watchers say the tribes are poised to break out from their casino base to begin making acquisitions in other industries. "You're going to see more deals in hospitality. They're looking at media and other entertainment, and I wouldn't be surprised to see amusement parks," said Victor Rocha, editor of the Indian gaming Web site Pechanga.net. "The tribes are cash-rich right now."

It's been a long journey for the Seminoles, who opened their first gaming parlor in 1979: "Our ancestors sold Manhattan for trinkets," said Max Osceola Jr., a Seminole council representative. "We're going to buy Manhattan back, one burger at a time."

The Florida Seminoles have the distinction of being the only Native American tribe that never signed a peace treaty with the U.S. To this day, Seminoles in Florida refer to themselves as the "Unconquered People." "In one generation, they've gone from being in poverty to being world players," says Richard Fields, a partner in Power Plant Entertainment, a development firm that is a partner in the Seminole's existing Hard Rock-branded casinos.

The Seminole deal affects 7,000 employees and involves more than 130 branded outlets. It is expected to be completed in March, pending shareholder approval, and involves more than 100 cafes, four hotels, two hotel-casinos, two concert venues, and portions of three other unbranded hotels. Rank Group CEO Ian Burke said the sale was driven by an effort to streamline Rank's business.

Skeptics and Sharks

But investors weren't impressed by the price Seminole is paying, and Rank shares fell more than 4% Dec. 7 on news of the deal. Simon Mackenzie-Smith, the head of British investment banking at Merrill Lynch International (MER) who brokered the deal, defends the pricing: "The market speculates on value as soon as the deal is seen as a possibility, and is not always accurate," he told BusinessWeek in an interview. "But based on the financial and business metrics, this represents a good price for the vendor, especially in dollar terms."

Despite the gusher of cash and a successful bid for the Hard Rock properties, all is not happy in Seminole territory. A person familiar with the situation said Power Plant is likely to file suit against Merrill Lynch next week. Merrill brokered the deal to sell Hard Rock for Rank, and Power Plant is angry that it was not allowed to bid, according to another person close to the bidding. Merrill and the tribe have an ongoing business relationship, which Power Plant considers the reason it was rejected. A Merrill spokesman said the firm does not comment on potential litigation. Allen said he had not heard of the bidding dispute. Other bidders for Hard Rock included hotels, gaming companies, and private equity firms, Allen said.

If a lawsuit is forthcoming, it will not be the first during the dramatic rise of the Seminole tribe. In August, the Seminoles sued Power Plant, their development partner, alleging that the contract between the two entities was illegal under the federal Indian Gaming Regulatory Act. The tribe said it estimates it will pay Power Plant between $1.6 billion and $2.2 billion in fees over the course of the first 10 years of the agreement, under the current contract.

And in 2004, real estate mogul Donald Trump sued Power Plant partner Fields, alleging that he had stolen the idea for a deal with the Seminoles from Trump. Fields had worked for Trump as a consultant in the 1990s, but countered that the deal was rightfully his, and that Trump had nothing to do with it. That legal battle continues.

This article appears in Business Week.

Copyright © 2006 The McGraw-Hill Companies Inc. All rights reserved.

Eamon Javers

Tuesday, December 12, 2006