he investment group bid us$ 67 a share for Penn National, which operates 18 casinos and horse racing tracks, a 31 percent premium over its Thursday closing price. The deal also includes us$ 2.8 billion in assumed debt. The buyout comes amid a flurry of casino deals and fueled speculation that more are in the works.
The company had a net revenue of us$ 2.2 billion in 2006 and its properties include four Hollywood Casinos in Louisiana, Illinois and Mississippi; Argosy casinos in Illinois, Indiana, Missouri and Iowa; and the Boomtown Casino in Biloxi. It has racetracks, some with slots, in Maine, West Virginia, New Jersey, Pennsylvania, Ohio and New Mexico.
The world’s largest casino operator, Harrah’s Entertainment, is in the process of being acquired by private equity firms for us$ 17 billion, while smaller local operator Station Casinos is in midst of a us$ 5.4 billion management-led buyout.
The buyout news boosted shares of other casino operators as well. Pinnacle Entertainment rose by us$ 2.40, or 8.3 per cent, to us$ 30.88, Isle of Capri Casinos tacked on us$ 1.89, or 8.4 per cent, to us$ 24.53 and MGM Mirage went up by us$ 3.97, or 4.8 per cent, to us$ 86.19.
"The bottom line that is private equity continues to like the characteristics of casinos and puts a higher value on them then the public markets," said Calyon Securities analyst Smedes Rose. "Between lodging and gaming companies, we will probably see more deals."
The offer values Penn National at nearly 35 times projected 2007 earnings per share, according to Reuters Knowledge. Casino operators Boyd Gaming and Ameristar Casinos trade at multiples around 25 times projected earnings.
"At this multiple I don’t expect to see another buyer," said Jefferies & Co. analyst Larry Klatzkin. "I think they tried to put in a price that won’t get topped. But in these days with private equity one can never be certain."
The deal is Fortress’ largest since its initial public offering in February, which made it the United States’ first publicly traded hedge fund group. Fortress shares were down nearly 6.5 percent at us$ 23.49 in late trade.
Another buyout firm, Centerbridge Partners LP, is investing alongside Fortress on the deal. Penn National’s management team, including CEO Peter Carlino and Chief Financial Officer William Clifford, is expected to remain with the company. The deal is expected to be completed in 12 months to 16 months. If it is not consummated by June 15, 2008, the per-share purchase price will rise by 1.49 cents per day.
Penn National shares surged 22 percent on the Nasdaq. Ameristar’s stock was up 8 percent. Elsewhere, shares in Trump Entertainment Resorts rose almost 5 percent to us$ 15.96 and Boyd’s were up nearly 3 percent to us$ 51.28.
More than 13,500 calls granting investors the right to buy Trump shares at us$ 17 a piece by the middle of July had also changed hands. Corporate debt of gambling companies also led junk bonds higher.
Penn National’s 6-3/4 percent bonds maturing in March 2015 jumped more than us$ 4 per us$ 100 face value to us$ 103.75 in trading last Friday, up from June 8 when the most recent trades registered on online bond trading platform MarketAxess.
Two U.S. senators introduced legislation on Thursday to tax investment firms such as Fortress like corporations, forcing them to pay a rate of up to 35 percent versus the 15 percent rate now paid by partners.
Fortress and private equity firm Blackstone Group LP, with its own IPO pending, could be exempt from the new code for 5 years. Lazard advised Penn National, and Deutsche Bank and Wachovia are serving as advisers and financial sources to Fortress and Centerbridge.