U.S. casino operator Penn National Gaming Inc. said on Monday it would buy Pinnacle Entertainment Inc. in a cash and stock deal valued at about $2.8 billion to create a larger-scale gaming platform.
Pinnacle's shareholders will receive $20.00 in cash and 0.42 shares of Penn National common stock for each Pinnacle share. According to Reuters calculations, the $32.47 per share offer represents a premium of 48.5 percent to Pinnacle's share close on Oct. 4, a day before the Wall Street Journal first reported on the merger talks.
As part of the deal, Penn and Pinnacle say they will sell four casino properties to rival Boyd Gaming Corp. for $575 million, including Ameristar St. Charles, the St. Louis area's largest casino.
Other properties to be acquired by Boyd include Ameristar Kansas City, along with Belterra Casino Resort in Indiana and Belterra Park in Ohio.
The deal, if approved by regulators, would give Penn National control of three of the six St. Louis area casinos: In addition to Penn National's Hollywood Casino in Maryland Heights and Casino Argosy Alton, the company would gain ownership of Pinnacle's River City Casino in Lemay.
After the deal, Penn National will operate a combined 41 properties with about 53,500 slots, 1,300 tables and 8,300 hotel rooms. Pinnacle owns and operates 16 gaming and entertainment facilities in 11 jurisdictions across the United States.
The Pinnacle deal is expected to generate $100 million in annual run-rate cost savings and would add to Penn National's free cash flow in the first year.
After the deal, Penn National will own 78 percent of the combined company, while Pinnacle will own the rest.
Goldman Sachs was the lead financial adviser and BofA Merrill Lynch was the financial adviser to Penn National. J.P. Morgan was advising Pinnacle.
The Missouri Gaming Commission and the Illinois Gaming Board would have to approve any transfer of control of any casino in their jurisdictions, the Post-Dispatch has reported.
Meanwhile, there's a precedent for federal regulators to step in to preserve competition in the local market.
Antitrust regulators with the Federal Trade Commission intervened when Pinnacle announced in 2013 a $2.8 billion deal to acquire then-rival Ameristar Casinos.
The FTC ordered Pinnacle to sell either Lumière in downtown St. Louis or River City. Pinnacle ended up selling Lumière to Tropicana Entertainment, a company controlled by billionaire Carl Icahn.
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