Penn, Pinnacle nuptials in the offing; Connecticut sues Trump administration

To absolutely no one’s surprise, Pinnacle Entertainment and Penn National Gaming formally affirmed that they are in merger talks. Among the upsides, Deutsche Bank analyst Carlo Santarelli cites the alleviation of forced asset sale in Pennsylvania, where the number of casinos has just been roughly doubled, easing antitrust concerns. He predicts a $32/share sale price and $75 million to $125 million in synergies. Writes Santarelli, “For starters, we see at least two areas where forced dispositions are likely, Missouri and Indiana. In Indiana, where [Penn] operates Hollywood Lawrenceburg and [Penn] operates Belterra and Ameristar East Chicago, the law prohibits ownership interests in more than two riverboat casinos. Thus, we believe one of the three assets would have to be disposed of.

In Missouri, the situation is less clear, but we expect at least one asset would have to be disposed of (5 total), as the FTC forced the sale of a St. Louis asset when PNK acquired Ameristar. We also believe Ohio and Mississippi could be reviewed with scrutiny. We note that given the [Pennsylvania] gaming expansion,” which lifted ownership restrictions, “a sale of Meadows or Hollywood Grantville is no longer required.” In Ohio, Belterra Park is stuck permanently in last place among gambling houses and is will surely be jettisoned.

In Indiana, Belterra would be the logical candidate for a sale, being relatively redundant with Hollywood Lawrenceburg and less lucrative than the latter or with strategically placed Ameristar East Chicago, leaving Penn with fortresses at the south and north ends of the state. If Penn is forced to split the baby in Missouri, that will be a more difficult call. All five Pinnacle and Penn properties — two in Kansas City and three in St. Louis — perform well, so there are no obvious castoffs. However, the state is unlikely to tolerate a supersized Penn dominating the Show-Me State’s gaming market. Gaming & Leisure Properties, which would own the underlying physical assets and already has Casino Queen in East St. Louis would be even more in competition with itself. Concludes Santarelli, “While there is surely overlap, the transaction is largely complementary, from a geographic perspective, for PENN … no single state will make up more than 12% of gaming positions, with the largest concentrations in Ohio (12% pre potential dispositions), Louisiana (9%), Pennsylvania (9%), and Indiana (8% pre dispositions).” Companies like Boyd Gaming that have identified themselves as being in an acquisition mode have to be licking their chops this morning.

* Secretary of the Interior Ryan Zinke is on the receiving end of a lawsuit from Connecticut Gov. Dannel P. Malloy (D), the Mashantucket Pequots and Mohegan Gaming Entertainment. Why? Because the Bureau of Indian Affairs has been dragging its feet regarding approval of the compact changes that would allow an off-reservation casino in East Windsor. Malloy’s position is that the compact changes have passively taken effect, since 45 days have elapsed without act from the BIA. It’s not clear to S&G that taking an electric cattle prod to Zinke will have the desired result.

* Disappointing New York State results aren’t slowing Resorts World Catskills. It’s installing 2,157 International Game Technology and Scientific Games slots as it prepares for a March 1. “Seeing these machines installed gives us a glimpse of just how fabulous our gaming floor will look on opening day,” said spokesman Charles A. Degliomini. At a minimum of $20,000 per one-armed bandit, that’s a $43 million bet by Genting Group, in the teeth of an adverse market.