Friday, June 15, 2007

Penn National Agrees to Be Acquired for $6.1 Billion


By Oliver Staley and Chris Burritt

June 15 (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 shares have risen sixfold in the past four years as more states legalize gambling, adding slot machines and table games to boost their tax base. The company acquired in April 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.

``We'll take it,'' said John Kornitzer, who oversees more than $6 billion, including 1.44 million Penn National shares at the end of March, at Kornitzer Capital Management in Shawnee Mission, Kansas.

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.

``They're buying all of these out because of cash flow,'' Kornitzer said.

Shares of Penn National climbed $11.27, or 22 percent, to $62.41 at 11:53 a.m. in composite trading on the Nasdaq Stock Market in New York.

Higher Bids

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 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 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.

Deal Completion

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

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 $2.24, or 4.5 percent, to $52.04, Pinnacle Entertainment Inc. gained $2.74, or 9.6 percent, to $31.22, and Ameristar Casinos Inc. increased $2.61, or 8.1 percent, to $35.02.

Harrah's Acquisition

Last year, Apollo Management LP and TPG Inc. agreed to buy Harrah's for $17.1 billion in what would be the largest casino acquisition. That deal is still awaiting regulatory approval.

Founded in 1998, Fortress has about $36 billion under management. The firm said in May it had received $2.84 billion in commitments for a new buyout fund.

Centerbridge is a $3.2 billion investment fund.

Lazard Ltd. served as financial adviser to Penn National. Wachtell, Lipton, Rosen & Katz provided legal advice. Deutsche Bank AG and Wachovia Corp. served as advisers to Fortress and Centerbridge, which received legal advice by Willkie Farr & Gallagher LLP.

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