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LAS VEGAS-Casino owner Riviera Holdings Corp. this week received and quickly rejected a $27-per-share cash offer from Riv Acquisitions Holdings Inc., which last year made a $17-per-share offer that was rejected by shareholders. This time around, Riviera Holdings Corp. says it’s Riv that sunk its own ship.

The owner of the Riviera Hotel Casino on the Strip and other properties says is not in a position to consider the merger proposal because Riv has entered into a lockup and option agreement for 9.2% of Riviera’s outstanding stock now held by Triple Five Investco LLC and Dominion Financial LLC, without prior approval by Riviera’s board of directors. Riviera chairman/CEO William Westerman says the action has triggered the defensive provisions of Nevada’s Business Combination Law and Riviera’s articles of incorporation applicable to “substantial stockholders.”

Westerman says such an action by Riv according to the Business Combination Law disqualifies Riv and its related parties from engaging in a merger or other combination with Riviera for the three-year period specified in the Business Combination Law. In addition, Riviera says its articles of incorporation state that if Riv ultimately buys Riviera shares from Triple Five, Dominion Financial or anyone else without the Riviera board’s prior approval, Riv’s voting rights as to those shares will be reduced to 1/100 of one vote per share.

Westerman says that prior to entering into the lock-up agreement without board approval Riv and its related parties made repeated requests to Riviera to allow the acquisition or lockup of Triple Five’s and Dominion Financial’s shares. “We rejected (Riv’s) requests because, among other reasons, they would have interfered with the ability of all Riviera shareholders to receive and respond to competing acquisition proposals and thereby get the highest value for their shares,” he says. “(Riv’s) lockup and option agreement for 9.2% of our stock, which takes that stock off the market for 90 to 180 days, is a prime example of what we repeatedly told (Riv) we would oppose.”

Riv consists of Paul C. Kanavos and Robert Sillerman, the managing members of New York-based Flag Luxury Properties LLC; Las Vegas developer Brett Torino; and Starwood Capital Group chairman and CEO Barry Sternlicht. Riv responded to Riviera’s decision this morning, stating in a letter that it “vehemently disagrees” with Riviera’s position.

“We feel strongly that the company’s stockholders deserve the opportunity to consider our offer and the Board should not stand in the way, particularly given that its opposition is based on what are clearly flawed arguments,” states the letter, which indicates that Riv will be sending the Riviera Board an executed merger agreement shortly and would require an immediate response, concluding, “We expect that Riviera’s stockholders will hold the Board accountable if it continues to ignore its fiduciary duties.”

The letter states that the Riviera Board previously granted Riv a waiver of the anti-takeover provisions in Riviera’s articles of incorporation as well as the business combinations provisions in the Nevada corporate statute. In the letter Riv also denies that it made repeated requests for board permission for the lock-up agreement. Instead, Riv alleges it asked for approval to acquire outright the stock held by Triple Five and Dominion Financial and only after the Board refused did it purchase an option from Triple Five and Dominion Financial that is conditioned on obtaining the necessary Board approvals.

“Ignoring the merits of our offer is directly contrary to the Board’s fiduciary duties,” states the letter from Riv. “The Board’s legal responsibility is to obtain the highest and best possible value for its stockholders, not to find spurious reasons why bidders (and in this case, the sole bidder) should be disqualified from acquiring the company.”

Riv’s offer is the fourth the company has received in the past year. In November 2006, it received a $21-per-share offer from a partnership of real estate developer Ian Bruce Eichner and the D.E. Shaw group, which is already a major shareholder of Riviera. The 30-day exclusive negotiating agreement came and went without any action being taken by either side.

In April 2006, Riviera Holdings signed a $17-per-share takeover agreement with Riv, which earlier in the year got Riviera CEO William Westerman to agree to sell his shares for $15 per share. The takeover agreement sparked a substantial response from investors, including class-action complaints and scathing letters from the company’s largest shareholders vowing to vote against the merger. Among other things, the letters question the Riviera board’s valuation of the company’s real estate in Las Vegas, which represents one of the last large developable parcels of land on the Strip.

In August, just before shareholders were to vote on the $17-per-share offer, a $20-per-share offer was submitted by International Gaming & Entertainment LLC, a special-purpose affiliate of BT Enterprises LLC, a Boston-based merchant equity fund. Riviera promptly delayed its shareholder vote and said it would review the proposal.

At the end of August, shareholders voted down the $17-per-share offer. In September, Riviera’s board of directors terminated consideration of the $20-per-share offer.

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