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Three-Way Deal Links Penn, Pinnacle and Boyd

Merger of two companies benefits a third and consolidates regional casino markets

Three-Way Deal Links Penn, Pinnacle and Boyd

In the latest action by casino operators to expand their market share, diversify their businesses, move into new geographic areas and cut costs, Penn National Gaming recently announced it will purchase Pinnacle Entertainment in a cash and stock deal worth $2.8 billion.

Pinnacle shareholders will receive $20 in cash and 0.42 shares of Penn National common stock for each Pinnacle share, for a total of $32.47 per Pinnacle share. Penn National shareholders will own 78 percent of the combined company and Pinnacle shareholders will own 22 percent.

In addition, to avoid objections from anti-trust regulators, as part of the arrangement, Boyd Gaming announced it will purchase, for $575 million, four Pinnacle casinos: Ameristar Kansas City and Ameristar St. Charles in Missouri, Belterra Casino Resort in Indiana and Belterra Park in Ohio.

Also, Boyd will sign a lease agreement with Gaming and Leisure Properties Inc. GLPI expects its total rent to increase by $46.1 million annually. Upon closing, Boyd will operate 28 properties in nine states.

And one day later, Boyd Gaming announced it had agreed to purchase the Valley Forge Casino outside of Philadelphia.

Boyd Chief Executive Officer Keith Smith said Boyd will have acquired four high-quality casinos in new markets at an attractive price with a high return potential. He noted the purchase adds very little debt and eventually will allow Boyd to return more cash to shareholders.

Officials at Penn National, the leading U.S. regional gaming operator based in Wyomissing, Pennsylvania, said the purchase is expected to close in the second half of 2018. The deal would raise Penn National’s revenue stream by $2 billion and give it 41 properties across 20 jurisdictions in North America, excluding those acquired by Boyd, offering 53,500 slots, 1,300 table games and 8,300 hotel rooms in the U.S. The combined company will have 35,000 employees, up from 19,000, with annual revenue of about $5 billion, making it the third-largest domestic casino operator after MGM Resorts and Caesars, according to SunTrust brokerage.

Penn National Gaming Chief Executive Officer Timothy Wilmott said, “This was a very complex four-party transaction, and we took a look holistically at the deal and what we needed to handle with regulatory approval at the state and federal level. By combining our highly complementary portfolios and similar operating philosophies, we will be able to leverage the strengths of both our companies and create an unparalleled experience for our regional gaming customers, while generating significant value for our shareholders and business partners. The combined company will benefit from enhanced scale, additional growth opportunities and best-in-class operations, creating a more efficient integrated gaming company.”

Wilmott noted combining Penn National and Pinnacle loyalty programs will allow Penn National to more effectively drive play at its properties, particularly Tropicana Las Vegas and M Resort.

Penn National Senior Vice President for Public Affairs Eric Schippers stated, “We grew from a single racetrack back in 1972 to what is today the largest regional gaming operation in North America. We’re getting into new states like Colorado, Louisiana and Iowa, which opens up all kinds of new opportunities as we diversify our portfolio.”

The purchase news comes one month after Las Vegas-based Caesars Entertainment announced it would buy Indianapolis-based Centaur Holdings LLC and its Hoosier Park and Indiana Grand casinos and racetracks in central Indiana for $1.7 billion in cash. The deal would add to Caesars’ portfolio four of Indiana’s top five casinos in terms of gambling revenue. Caesars already owns two Horseshoe-branded casinos in Indiana. The purchase is awaiting approval from the Indiana Gaming Commission and Indiana Horse Racing Commission.

In addition, earlier this year, Eldorado Resorts, based in Reno, bought Isle of Capri Casinos Inc. and its 14 casinos for $1.7 billion. Gaming and Leisure Properties bought Bally’s Casino Tunica and Resorts Casino Tunica in Robinsonville, Mississippi for $82.6 million.

And to add to its haul, Boyd Gaming announced that it had entered into a definitive agreement with Valley Forge Convention Center Partners, L.P., to acquire Valley Forge Casino Resort in King of Prussia, Pennsylvania, for total cash consideration of $280.5 million.

Located 20 miles west of downtown Philadelphia, Valley Forge will be Boyd Gaming’s first asset in Pennsylvania, the second-largest commercial gaming state in the nation.

The Valley Forge property is one of two Category 3 casinos in the state, which, under the original 2004 state gaming law, were limited to 600 slot machines and 50 table games, and were required to be attached to a hotel. The property became more appealing as an acquisition target after the state’s new gaming law eliminated “membership” requirements that imposed an annual entry fee or required that money be spent elsewhere on a property prior to entering the casino. The law also allowed for increases in the slot inventory.

The gaming law offered to eliminate the restrictions for a fee, which Valley Forge paid immediately.