Boyd Gaming Eyes $9 Billion Acquisition of Penn Entertainment Amid Industry Speculation

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In a move that has taken few by surprise, gaming behemoth Boyd Gaming – operating under the ticker symbol NYSE: BYD – has thrown its hat in the ring as a potential acquirer of fellow titan Penn Entertainment. However, industry experts are quick to caution that whispers of a deal are far from an iron-clad guarantee of an acquisition.

Carl Santarelli, an analyst at Deutsche Bank, has become the latest to weigh in on the murmuring feedback loop of rumors and speculation. In a report published recently, Santarelli lays bare an increasingly common sentiment among analysts on the sell-side that the idea of Boyd Gaming acquiring Penn is a cogent notion, but remains a far cry from actual execution. Adding a twist to the brewing intrigue are unconfirmed reports suggesting tacit acquiescence from Penn towards the impending acquisition.

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Last week saw the appearance of media reports hinting at ongoing discussions between Boyd and Penn regarding the potential purchase, valued over $9 billion. Santarelli, however, threw cold water on these figures, suggesting that if an offer were indeed tabled, the asking price would likely range between $25 to $30 a share, a figure contingent upon Penn’s outstanding share count of 151.55 million. If the $30 a share hypothesis were to pan out, it would place the iconic Ameristar operator at a value of $4.54 billion, a figure deemed low-ball by pre-breakfast standards, according to some expert analysts.

Rumors of the possible Boyd/Penn merger have also called into question the fate of Penn’s online sports betting arm, ESPN Bet. Given that Boyd already boasts a 5% stake in FanDuel, analysts believe that the firm has little to gain by acquiring Penn’s significantly lesser-known internet gaming and sports betting operation. They echo Santarelli’s sentiment that any potential offer for Penn would hinge on the ESPN Bet segment being sold off to a third party, making the projected $25 to $30 a share offer more palatable.

Santarelli expanded his take on the possible management of the acquisition, noting several ways that Boyd could effectively assimilate Penn. These include absorbing the target’s operational losses, cutting out between $75 million to $150 million in duplicative operations, as well as selling off overlapping assets to third-party buyers. If the acquisition does proceed, the gaming scene could see a significant reshuffling of traditional brick-and-mortar casinos – courtesy of Boyd.

Santarelli has, however, expressed skepticism regarding the prospect of Boyd paying significantly more for Penn than its own current worth. Referring to the market valuation of Boyd as of June 21, he noted that the Orleans operator was pegged at $5.1 billion. Considering Boyd’s long-term profitability and low volatility relative to its potential cashflows, a lofty acquisition price for Penn is unlikely.

Casting attention towards Penn’s peculiar position as a landlord-less entity — the company doesn’t own any land beneath its slew of operational casinos, pointing to large fixed obligations to its landlords, notably Gaming and Leisure Properties (NASDAQ: GLPI). Boyd has a previously established connection with GLPI, however, it has historically expressed preference for retaining ownership of its property assets. This noteworthy point implies that GLPI, as a real estate investment trust, might have a significant voice in the sale of Penn, potentially affecting subsequent actions taken by Boyd post-acquisition.