Penn Ends Deal
Private-equity buyout canceled as gaming stocks plunge
It’s been a long road, but it appears that the deal proposed by two private equity companies to buy Penn National Gaming is over.
Fortress Investment Group and Centerbridge Partners had agreed to buy the casino and racetrack operator last year for $67 a share, which had been approved by Penn National shareholders, but as the fortunes of gaming companies across the board declined, Penn was not immune. The value of a share of Penn stock had declined to the mid $40 range several weeks ago, even as the company was gathering regulatory approvals for the buyout. But the recent plunge to the low $30s was simply too much for the companies to absorb.
Penn said that approval of the deal would have required “lengthy litigation” and that lowering the price paid by the private-equity firms for the company “was not an option.”
The announcement was not a surprise. The ongoing credit crisis has caused several leveraged buyouts to fall apart, and the distance between the buyout value and the current share price was too much to overcome.
The implosion of the deal isn’t necessarily bad news for Penn. It will get $1.475 billion from the collapse of the deal. Penn said it plans to use the money to pay off debt, develop new gaming facilities and repurchase stock. The company unveiled a $200 million share repurchase plan on the same day the deal ended.
The company also said it would examine expansion opportunities in Maryland and Atlantic City, as well as possibly buying debt of other gaming companies.
“We are extremely disappointed that the company’s shareholders will not receive the $67 per share merger consideration,” said Carlino. “We may be in the gaming business, but we would never gamble the company’s future.”
A recent analysis of the debt taken on by Harrah’s Entertainment after it was taken over by Apollo Management and Texas Pacific Group indicates that the company is suffering under the load. Capital reinvestment within the company’s properties is getting more difficult since so much debt must be serviced.
Still, Penn Chairman Peter Carlino said the company would move forward.
“We are extremely disappointed that the company’s shareholders will not receive the $67 per share merger consideration,” said Carlino. “We may be in the gaming business, but we would never gamble the company’s future.”
