Casino operator Penn National to buy Pinnacle in $2.8 billion deal

(Reuters) - 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, cementing its position as the leading U.S. regional gaming operator.

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The deal is the latest in a series of mergers and acquisitions in the U.S. gambling sector in recent years as companies look to expand their reach, diversify their businesses and take advantage of recent legalization of gaming in some states.

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In a bid to assuage regulatory concerns around the deal, Pinnacle will sell four of its Ameristar properties to Boyd Gaming Corp for $575 million. At the same time, Boyd will sign a lease agreement with Gaming and Leisure Properties Inc, the landlord for Penn National and Pinnacle.

"This was a very complex four-party transaction and we took a look holistically at the deal and what we needed to handle regulatory (approval) at the state and federal level," Penn National Chief Executive Timothy Wilmott said.

After the deal, Penn National will operate a combined 41 properties with about 53,500 slots, 1,300 tables and 8,300 hotel rooms in the United States.

Under the deal, Pinnacle's shareholders will receive $32.47 per share, comprising $20.00 in cash and 0.42 shares of Penn National common stock.

The offer represents a premium of 36 percent for Pinnacle shareholders based on the closing price of the two stocks on Oct. 4, a day before the Wall Street Journal first reported that the companies were in merger talks.

Pinnacle's shares were trading at $31.03, below the offer price, while those of Penn National were down 3.6 percent at $31.00.

Penn National expects to benefit with respect to the potential changes in the tax laws, including getting access to additional ammunition for potential acquisitions, Chief Financial Officer William Fair said on a call with analysts.

Union Gaming Research analyst John DeCree said he expected M&A activity in the sector to continue through 2018, adding that casino operators would gain from low cost of capital and potential tax reforms next year.

The Pinnacle deal is expected to generate $100 million in annual run-rate cost savings within 2 years of closing.

After the deal, Penn National shareholders will own 78 percent of the combined company and Pinnacle shareholders 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.

RELATED: 9 pieces of business advice from Forbes' '100 Greatest Living Business Minds 2017':

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9 pieces of business advice from Forbes' '100 Greatest Living Business Minds'
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9 pieces of business advice from Forbes' '100 Greatest Living Business Minds'

Sheryl Sandberg, on empathy:

"We are better employees when we stop trying to be two people and bring our whole self to work. that doesn’t mean working around the clock. it means sharing what you are going through so that other people can empathize and help you."

Elon Musk, on foresight:

"We’re the first species capable of self-annihilation, and it’s extremely likely, given enough time. The question: Can we get ahead of it?"

Sean Parker, on innovation:

"I have always chosen to ignore the conventional wisdom in favor of the ideas that interested me. Inventing the future starts with intellectual curiosity — along with a healthy dose of skepticism."

Warren Buffett, on investing:

"Find a good business — and one that i can understand why it's good — with a durable, competitive advantage, run by able and honest people, and available at a price that makes sense.”

Jack Dorsey, on mistakes:

“My biggest mistake was thinking i shouldn’t show my mistakes — I learned I should.”

Mark Zuckerberg, on motivation:

“People often ask me for advice about starting a company, and I always tell them your goal should never be starting a company. Focus on the change you want to make, find the people who share your same purpose, and eventually you may have an opportunity to build something that helps create purpose for others and has a positive impact on the world.”

Bill Gates, on revolution:

“Because it's so easy for someone with a great idea to share it with the world in an instant, the pace of innovation is accelerating — and that opens up more areas than ever for exploration.”

Richard Branson, on risk:

“We take tons of risks in life, whether personal risks or business risks. We sometimes fall flat on our face. But people don’t mind people who try things and fail.”

Michael Bloomberg, on risk/reward:

"Organizations resist innovation — and those that do inevitably fail — because people are more comfortable with what they know than with what they don’t."

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(Reporting by Arunima Banerjee and Aishwarya Venugopal in Bengaluru; Editing by Maju Samuel and Saumyadeb Chakrabarty)

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