Penn National set to buy Pinnacle

The company said on Monday that it is set to acquire Pinnacle Entertainment in a US$2.8 billion deal.

US.- Casino operator Penn National Gaming Inc disclosed on Monday that it is interested in acquiring Pinnacle Entertainment Inc in a cash and stock deal that totals US$2.8 billion. A merger would help the companies compete with operators like MGM and Caesars, both of them trying to expand their operations in that region of the country.

Pinnacle revealed that the shareholders of the company would receive US$20.00 in cash and 0.42 shares of Penn National’s common stock for each Pinnacle share, setting a total purchase price of US$32.47 per Pinnacle share. As Reuters estimated, after the deal Penn National will operate a combined 41 properties with about 53.5k slots, 1.3k tables and 8.3k hotel rooms. The transaction is expected to generate US$100 million in annual run-rate cost synergies following integration and is anticipated to be immediately accretive to free cash flow in the first year. Pro forma for the divestitures and synergies, the acquisition reflects a multiple of 6.6x LTM EBITDA.

Timothy J. Wilmott, Chief Executive Officer of Penn National Gaming, commented: “The combined company will benefit from enhanced scale, additional growth opportunities and best-in-class operations, creating a more efficient integrated gaming company. Going forward, we will have the financial and operational flexibility to further execute on our strategic objectives, while maintaining our track record of industry-leading profit margins and generating significant cash flow to reduce leverage over time. We look forward to welcoming Pinnacle’s talented employees to our team and to further enhancing our status as North America’s leading regional gaming operator.”

Anthony Sanfilippo, Chairman and Chief Executive Officer of Pinnacle Entertainment, said: “Pinnacle is a terrific company whose success is due to the efforts of our more than 16k team members that focus every day on providing great service and memorable experiences for our guests…Pinnacle shareholders will receive immediate value from the cash consideration, as well as participation in the longer-term growth of Penn National that we expect will occur from the integration of these two great companies into a more efficient, larger-scale gaming entertainment platform. We are also pleased that Boyd Gaming will be acquiring our Ameristar properties in St. Charles and Kansas City, along with Belterra Casino Resort and Belterra Park. We look forward to working closely with Penn National and Boyd to seamlessly transition the Pinnacle businesses to their respective new owners,” he added.

Pinnacle owns 16 casinos, mainly in the Midwest and South, and would increase its offering by teaming up with Penn National, which is present in 29 states like Nevada, New Jersey, Massachusetts, St. Louis and California. It is estimated that St. Louis regulators would ask Penn National to sell some properties in order to preserve market competition. The transaction is subject to the Missouri Gaming Commission and the Illinois Gaming Board, which have to approve any modifications to casino control in those territories.

Penn National has received committed financing for the transaction, subject to customary conditions, from BofA Merrill Lynch and Goldman Sachs Bank USA, and expects to fund the acquisition with a combination of the proceeds from the Boyd and GLPI transactions, existing cash on its balance sheet and new debt financing. Penn National anticipates that the additional cash flow resulting from the acquisition will allow it to pay down debt on an accelerated basis after closing.

The transaction is also subject to approval of the shareholders of Penn National and Pinnacle, the approval of applicable gaming authorities, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and other customary closing conditions. The companies expect the transaction to close in the second half of 2018. Upon completion of the transaction Penn National and Pinnacle shareholders will hold 78 percent and 22 percent, respectively, of the combined company’s outstanding shares.