FTC Approves Penn National Gaming’s $2.8-Billion Acquisition of Fellow Casino Company

Companies should divest casino assets in three Midwestern cities over competition concerns

The US Federal Trade Commission (FTC) approved earlier this week Penn National Gaming’s previously announced purchase of fellow casino operator Pinnacle Entertainment in a deal valued at $2.8 billion. However, the two companies are now required by the FTC to divest casino assets in three Midwestern cities within ten days after the completion of the acquisition deal.

The FTC said in a statement from Monday that it believes the merger of the two major companies would have a negative impact on competition for casino gambling services in the cities of St. Louis, Missouri; Kansas City, Missouri; and Cincinnati, Ohio. As a result the merged company will have to divest its casino assets in the three cities to fellow gaming and hospitality operator Boyd Gaming.

Pinnacle has previously agreed to sell four properties to Boyd Gaming. The latter will pay $575 million in cash for the casinos.

Following the FTC’s approval, Penn National Gaming said that it expects to complete the acquisition of Pinnacle early in the fourth quarter of the year. The deal has received the necessary approvals from 13 gambling regulators. It was also overwhelmingly approved earlier this year by both Penn National Gaming and Pinnacle shareholders.

A Flurry of Consolidation Deals

News about Penn National Gaming securing approval from the FTC arrived just as rival operator Eldorado Resorts completed the acquisition of Tropicana Entertainment amid a wave of consolidation in the US land-based casino sector.

Penn National Gaming and Pinnacle first announced their plans to merge their operations in a deal valued at around $2.8 billion last winter. The transaction is expected to create a behemoth casino gaming company with approximately 53,500 slot machines, 1,300 table games, and 8,300 hotel rooms in a number of jurisdictions across the United States.

After the deal’s completion, Penn National Gaming will own 78% of the combined entity, while Pinnacle will own the remaining 22% stake. The consolidation is expected to create around $100 million in annual cost savings and to add to Penn National Gaming’s free cash flow during the first year.

Caesars Entertainment Corp. also jumped on the consolidation bandwagon shortly after it emerged from a lengthy bankruptcy case last fall. The company announced that it would buy Indiana-based gaming company Centaur Holdings in a deal valued at $1.7 billion. The transaction was completed this past July and saw Caesars add Centaur’s Hoosier Racing and Casino and Indiana Grand Racing and Casino properties to its portfolio and thus extend its footprint in the lucrative Indiana gaming market.

The likes of Penn National Gaming, Eldorado Resorts, and Caesars (as well as the companies they have recently combined with or are to combine with in the coming weeks/months) have been driven by fairly similar reasons to undertake consolidation moves. Growing competition in the sector, the legalization of casino gambling in several states over the past several years, and the impact of online gambling on land-based casinos have been some such reasons for the wave of M&A deals in the space.

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