Boyd Gaming Eyes Record $9 Billion Takeover of Penn Entertainment amid Surging Stocks

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Penn Entertainment’s shares were suspended from trading late this past Thursday before making a strong rally in the wake of an anticipated takeover bid by Boyd Gaming. The buzz is that Boyd Gaming, known for its iconic Fremont Hotel and Casino located in downtown Las Vegas, is looking to pitch a takeover offer for Penn Entertainment, topping $9 billion. The report, which originated from anonymous sources, has thrust both companies into the limelight, yet neither has publicized an official response.

Expressing potential interest in the regional casino operator, Boyd Gaming drew attention just over a week ago when they added Michael Hartmeier to their board of directors. Hartmeier previously served as group head of lodging, gaming, and leisure investment banking for Barclays, the same company at which Penn Entertainment CFO Felicia Hendrix served as managing director for over a decade. Notably, their tenures at Barclays overlapped, adding further fuel to the burgeoning rumors of a possible takeover.

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These speculations followed shortly after a noteworthy intervention by the Donerail Group, a primary investor in Penn. In a recent letter to Penn’s board of directors, Donerail urged the business to consider selling itself, in light of several expensive errors in its online sports wagering ventures. If Penn were to agree to a $9 billion offering from Boyd, it would bring the value of the company to triple its current market capitalization, which presently stands at $2.72 billion.

The potential takeover also holds significant implications for the future of the casino industry; a $9 billion deal between Boyd and Penn would be the highest-valued transaction since Eldorado Resorts acquired Caesars Entertainment for $17.3 billion in 2020. Interestingly, Boyd’s enterprise value of $7.8 billion may necessitate a venture into capital markets to seal a deal with Penn.

However, such a transaction isn’t without its potential snags. Regulatory roadblocks could appear given that Boyd and Penn both operate in several overlapping states such as Illinois, Kansas, Louisiana, Nevada, and Pennsylvania. Regulators in these states may express apprehensions regarding potential competition issues, asset sales, or the magnitude of the acquisition, to name a few.

The matter of property ownership could also provide a stumbling block. A considerable percentage of Penn’s casinos sit on land owned by Gaming and Leisure Properties (GLPI) who, as a result, would likely have some influence over a potential sale of Penn, given its standing as GLPI’s largest tenant.

Lastly, an intriguing twist arises from an agreement made last August between Penn and Walt Disney. Penn had agreed to pay the Disney-owned ESPN $1.5 billion in stock over 10 years for the right to utilize the network’s name on its ESPN Bet mobile sports wagering application. This situation is further complicated as Boyd owns a 5% stake in FanDuel, currently the country’s largest sports betting app.

To conclude, while the rumors are swirling around Boyd and Penn, the final outcome remains unpredictable. However, it seems more likely that Boyd is focusing on Penn’s geographical footprint rather than its online sports gambling ventures.