Penn to go private

Because I like the finance side so much, here’s a pretty bit story about a major gaming operator going private, from Bloomberg:

Penn National Gaming Inc., the owner of 18 casinos and horse-racing tracks, agreed to be taken private by buyout firms Fortress Investment Group LLC and Centerbridge Partners LP for $6.1 billion.

Penn National’s revenue quadrupled in the past five years as more U.S. states legalized gambling, adding slot machines and table games to boost their tax base. The company in April acquired the Zia Park Racetrack and Black Gold Casino in New Mexico and will open new facilities in Pennsylvania and Maine by 2008.

Investors will get $67 a share in cash, Penn National said today in a statement. That’s 31 percent higher than yesterday’s closing share price. The firms plan to repay $2.8 billion of the company’s debt.

“They have a very stable management, and it’s a very well run company,” said Dan Ahrens, a Dallas-based portfolio manager for the Ladenburg Thalmann Gaming and Casino Fund, which owns Penn National shares. “There certainly could be higher offers. I see very, very little downside risk.”

Penn National, based in Wyomissing, Pennsylvania, is the latest casino company to be taken private by investment firms attracted to their real estate and ability to generate cash. Since the beginning of 2006, companies including Kerzner International Ltd., Aztar Corp., Station Casinos Inc. and Harrah’s Entertainment Inc. have all agreed to takeovers.

The agreement allows the company to seek higher bids for the next 45 days. Chief Executive Officer Peter Carlino and other members of the management team will remain with the company, Penn National said.

“Due to the scarcity of quality regional assets, we can’t rule out competing bids at this point,” Joseph Greff, an analyst at Bear Stearns Cos. in New York, said today in a research note.

The price of $67 a share values Penn at about 10.3 times 2008 estimated earnings before interest, taxes, depreciation and amortization before taking into account construction in progress, Harry Curtis, an analyst at J.P. Morgan Securities Inc., wrote in another note.

That’s less than Harrah’s and Aztar deals, which he valued at between 11 times and 12 times 2008 Ebitda. Using that valuation, Curtis estimated Penn could go for between $73 and $80 a share. Curtis, based in New York, rates shares “overweight.”

Penn National operates slot machines and table games in 13 states and Canada including New Jersey, Colorado and Illinois.

Penn said the transaction is expected to be completed within the next 12 months to 16 months, pending approval from state and federal regulators. The firms will pay an additional 1.49 cents a day a share for each day beyond June 15, 2008, the deal isn’t finished.

With so many states needed to approve the acquisition, investors are taking a possible delay into account, said the Gaming Fund’s Ahrens. The difference between the share price and the offer “is only the time value of money,” he said.

The Carlino family, including Peter Carlino, is Penn’s largest shareholder, owning an 11 percent stake through a trust At $67 a share, they will receive about $639 million. Individual family members have additional holdings.

Other regional casino companies climbed as well as investors speculated they may be takeover targets. Boyd Gaming Corp. rose $1.55, or 3.1 percent, to $51.35, Pinnacle Entertainment Inc. gained $2.31, or 8.1 percent, to $30.79, and Ameristar Casinos Inc. increased $2.60, or 8 percent, to $35.

Last year, Apollo Management LP and TPG Inc. agreed to buy Harrah’s for $17.1 billion, or $90 a share, in what would be the largest casino acquisition. That deal is still awaiting regulatory approval. Penn had made a bid for Harrah’s worth about $87 a share, the Wall Street Journal reported at the time.

Penn National started as a single horse-racing track in Grantville, Pennsylvania, in 1972 and has expanded to 18 casinos and horse-racing facilities under CEO Carlino, 60. The company went public in 1994.

Penn’s revenue last year climbed 59 percent to $2.24 billion compared with a year earlier. Profit almost tripled to $327.1 million. Worldwide

At this rate, I wouldn’t be surprised if most casino companies go private in the next 2-3 years. If Trump Resorts gets bought by a private company, for example, the Borgata will be the only casino owned by a publicly-traded company in Atlantic City. That’s quite a change.

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