What Penn National Gets With $2.8 Billion Deal for Pinnacle

Casino operator Penn National Gaming Inc. (NASDAQ: PENN) announced Monday morning that it has reached a definitive agreement to acquire Pinnacle Entertainment Inc. (NYSE: PNK) for $1.87 billion in cash and stock. Including Pinnacle debt, the total value of the transaction is $2.8 billion.

Penn National is paying a 36% premium to Pinnacle’s share price on October 4, the day the first reports of an acquisition appeared. Pinnacle shareholders will receive $20 in cash and 0.42 shares of Penn National common stock for each Pinnacle share, which implies a total purchase price of $32.47 per Pinnacle share based on Penn National’s closing price last Friday. The deal is expected to close in the second half of next year, and former Pinnacle shareholders will own about 22% of the new company.

The combined company will own 41 properties in 20 different jurisdictions across North America. Executives expect run-rate cost savings of $100 million once the two firms are integrated.

Penn National CEO Timothy Wilmott said:

The combined company will benefit from enhanced scale, additional growth opportunities and best-in-class operations, creating a more efficient integrated gaming company. Going forward, we will have the financial and operational flexibility to further execute on our strategic objectives, while maintaining our track record of industry-leading profit margins and generating significant cash flow to reduce leverage over time. We look forward to welcoming Pinnacle’s talented employees to our team and to further enhancing our status as North America’s leading regional gaming operator.

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Penn National has also agreed to sell four properties to Boyd Gaming Corp. (NYSE: BYD) for $575 million in cash, contingent on a successful closure of the Pinnacle transaction.

In 2013 Penn National spun-out its real estate operations in a separate company, Gaming & Leisure Properties Inc. (NASDAQ: GLPI), which has agreed to certain transactions involving Penn National and Boyd once the Pinnacle acquisition is completed.

Pinnacle shares traded up about 0.8% early Monday morning, at $31.21 in a 52-week trading range of $13.61 to $33.59.

Penn National stock traded down about 1.6%, at $29.19 in a 52-week range of $13.00 to $30.99. The stock’s 12-month consensus price target is $28.27.

Gaming & Leisure’s stock traded up about 2.6%, at $36.96 in a 52-week range of $29.86 to $39.32, and Boyd stock traded up 3.8% to $33.57, in a 52-week range of $19.19 to $34.20. Boyd’s high was posted this morning.

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