Thursday, Casino operator Penn National Gaming, Inc. (PENN) said it agreed to terminate its merger agreement with PNG Acquisition Company Inc., an entity indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (FIG) and Centerbridge Partners, L.P.
Following the termination of the merger deal, Penn National joined the growing list of abandoned private equity takeovers amid the tight credit markets and weak U.S. economy. Private equity buyouts have hit a snag due to the squeeze in the credit markets, which is hampering the ability of private-equity firms to raise funds for the deals. The credit meltdown has triggered concerns about the completion of previously announced deals that were struck when loans were easy and cheap. The companies, whose merger with private equity firms collapsed include Sallie Mae (SLM), Harman International Industries Inc. (HAR) and United Rentals Inc. (URI), Alliance Data Systems Corp. (ADS) and 3Com Corp. (COMS).
Shares of Penn National have been under scanner for several months amid investors' concerns that the terms of the deal might be revised or that the buyout firms might not able to fund the deal.
The Wyomissing, Pennsylvania-based Penn National said it became apparent to the company that the proposed merger transaction would not be completed without significant and lengthy litigation, which is inherently unpredictable. Further, Penn National said it also became apparent to the company and its Board that a re-negotiated, reduced purchase price was not a viable option.
The management and Board of Penn National Gaming concluded that the likelihood of successfully navigating the remaining regulatory approvals, credit facility conditions for funding and likely litigation required to complete these tasks was highly uncertain. Last month, Penn National extended the end date of the merger agreement by 120 days, from June 15, 2008 to October 13, 2008. In April, Mississippi Gaming Commission also approval the deal. But, the deal still required approval from gaming commissions in Indiana, Louisiana, Missouri and Maine.
In June 2007, Penn National Gaming agreed to be acquired by PNG Acquisition Company for $67.00 per share. Based on 86.94 million shares outstanding as of May 1, the deal was valued at $5.82 billion.
Consequent to the termination of the merger agreement, Penn National Gaming will receive $1.475 billion, including a $225 million termination fee and a $1.25 billion, seven-year, preferred equity investment by affiliates of Fortress, Centerbridge, Wachovia and Deutsche Bank.
In connection with the investment, Fortress Chairman and Chief Executive Wesley Robert Edens will join Penn National's board, which will expand to seven directors.
Penn National said it intends to use the proceeds from the investment to repay existing debt, acquire or develop gaming facilities and to buy back its common stock. As of May 31, Penn National had outstanding debt of about $2.97 billion.
Meanwhile, Penn National's Board has authorized the repurchase of up to $200 million of the company's common stock over the next 24 months.
For the second quarter, Penn National expects revenue of $621.8 million, lower than prior year revenue of $625.2 million. Four Wall Street analysts expect revenue of $656.44 million for the second quarter.
For the third quarter, the company projects revenue of $657.4 million, up from last year revenue of $629.5 million. Four analysts predict revenue of $681.59 million for the third quarter.
For the fiscal 2008, the company estimates revenue of $2.538 billion, higher than $2.436 billion in fiscal 2007. Five Street analysts predict revenue of $2.62 billion for fiscal 2008.
Shares of Penn National are currently down $1 or 3.50% to trade at $27.60. In the past 52-weeks, the stock has been trading between $28.20 and $62.30.
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