Good horse sense
Churchill CEO whips activist pre-race with …
At the legendary Churchill Downs this Saturday, the Kentucky Derby will be only part of the story.
The better tale, perhaps, is how William Carstanjen, the chief executive of Churchill Downs Inc., the owner of the 143-year-old track and other properties, quietly outfoxed an activist investor in the last year — leaving his company in a much stronger position.
The activist, who took a less than 5 percent stake in Churchill Downs, thus sidestepping the requirement that the investment be made public, was angling to break up the company and sell off the Kentucky Derby, one of the world’s most famous horse races, The Post has learned.
A proxy battle was being weighed, sources close to the situation said. At the time, Wall Street was projecting Churchill Downs to post low single-digit growth in 2017.
The position, previously unreported, forced Carstanjen to react.
Looking around his stable of assets, Carstanjen and the rest of the board decided to sell Churchill’s video game business, Big Fish Games, which is not among its core group of racetrack and casino assets.
Big Fish makes arcade game apps like “Big Fish Casino” and “Bush Whacker 2,” games in which money is wagered.
On Nov. 29, Churchill announced that it had sold Big Fish to Australia’s Aristocrat Leisure for $990 million cash, a higher valuation than expected. Churchill shares ticked up 6 percent on the news.
With Churchill’s coffers stuffed with nearly $1 billion in cash, Carstanjen announced a $500 million share buyback and, in March, the purchase of two racinos — one on Pennsylvania and one in Mississippi — for a total of $229.5 million.
Both racinos could become hit properties if the US Supreme Court, in a case involving New Jersey sports betting, tosses out a federal law prohibiting sports gaming.
A ruling is expected in the next few weeks.
Churchill, too, reduced its cost structure at its casinos, raising profit margins higher than projections.
Over the past year, Churchill’s shares have risen 64 percent, to Wednesday’s close at $274.80. Over the same span, the S&P 500 is up 10 percent.
With the Carstanjen turnaround in full effect, the activist decided several months ago to sell his position at a profit and move on, one source said.
Ironically, the victory over the activist was aided in no small part by a perceived “weakness” in Churchill’s No. 1 asset: the Kentucky Derby.
The activist, sources said, quietly shopped the Derby to potential buyers, hoping to get interest at a purchase price north of $2 billion. But it didn’t get a nibble. “That was too much money for suitors,” a source with direct knowledge of the situation said, adding the level of interest was surprisingly low.
A JPMorgan analyst last week valued the Kentucky Derby, the first leg of the Triple Crown, at $1.8 billion.
So the perceived “weakness” in the Derby’s value visà-vis the activist’s hoped-for valuation helped push the activist away from a proxy fight — and its investment.
As the horses make their way to the starting gate on Saturday, that fact should make Carstanjen a happy horseman.
A Churchill spokesman declined to comment