Business - Casinos

Friday, Jul. 04, 2008

$5.8B sale of casinos is off: Boomtown, Hollywood involved

Penn National Gaming Inc. will retain control of Boomtown Biloxi, Hollywood Bay St. Louis and its other casinos due to a declining purchase price, the casino operator announced Thursday.

Penn National and PNG Acquisition Co. terminated the proposed $5.82 billion merger agreement, saying it was clear the takeover wouldn't be completed without "significant and lengthy litigation," and also said a re-negotiated, reduced purchase price "was not a viable option."

The buyers, Fortress Investment Group LLC and private-equity firm Centerbridge Partners LP, had valued the deal at $67 per share, but since the buyout was announced last June Penn shares have sagged 44 percent, recently bottoming at $28.20.

The takeover was bogged down by the state regulatory approval process, and a closing date for the sale had already been pushed back from June 15. Analysts had doubts about the reality of closing the deal, saying banks appeared to be reconsidering funding commitments amid significant write-downs in the financial sector.

In a statement, Penn National said it will receive $1.475 billion in cash, including a $225 million termination fee and a $1.25 billion, seven-year, preferred equity investment by affiliates of Fortress, Centerbridge, Wachovia and Deutsche Bank. Fortress Chairman and Chief Executive Wesley Robert Edens, 46, will join Penn National's board, which will expand to seven directors.

Penn National said it intends to use the cash infusion to pay down debt, acquire or develop gaming facilities and to buy back its common stock. As of May 31, Penn National had outstanding debt of about $2.97 billion. The company has authorized the repurchase of up to $200 million worth of common stock over the next two years.

Representatives of the local casinos directed questions about the termination of the merger to the corporate office of Penn National. Expansion plans at both Boomtown and Hollywood casinos had stalled while the merger process was under way.

Penn National's CEO Peter Carlino said the company was "extremely disappointed" its shareholders will not receive $67 per share from the merger, but said "we believe the substantial capital infusion will enable Penn National to be aggressively opportunistic at a time when gaming industry valuations appear very attractive."