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FTC Challenges Pinnacle's Proposed Acquisition Of Ameristar Casinos

The U.S. Federal Trade Commission or FTC said Wednesday that it has challenged casino operator Pinnacle Entertainment, Inc.'s (PNK) proposed $2.8 billion acquisition of peer Ameristar Casinos, Inc. (ASCA). According to the FTC, the proposed deal would reduce competition and lead to higher prices as well as lower quality for customers in the St. Louis, Missouri and Lake Charles, Louisiana areas.

The FTC issued an administrative complaint against the two Nevada-based companies, alleging that the deal would violate U.S. antitrust law. The agency also authorized its staff to seek a temporary restraining order and preliminary injunction if, and when, necessary to prevent the consummation of the acquisition pending the administrative trial on the merits.

The FTC vote to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction in federal district court was 4-0. The evidentiary hearing is scheduled before an administrative law judge at the FTC on October 28, 2013.

Pinnacle Entertainment said in late December 2012 that it agreed to buy Ameristar Casinos for a total enterprise value of $2.8 billion. This includes debt of $1.9 billion and cash on hand of $116 million as of September 30, 2012.Under the terms of the deal, Pinnacle Entertainment will acquire all of the outstanding common shares of Ameristar for $26.50 per share in cash.

Pinnacle Entertainment owns and operates nine casinos and horse racing facilities in five states. In addition, the company is redeveloping River Downs in Cincinnati, Ohio into a gaming entertainment facility and holds a 26 percent ownership stake in Asian Coast Development (Canada) Ltd., an international development and real estate company currently developing Vietnam's first large-scale integrated resort on the Ho Tram Strip.

Ameristar owns and operates eight casinos in six states and is in the process of building its ninth casino.

Pinnacle Entertainment has noted that it will benefit from increased operational and geographic diversity by more than doubling in size to 17 operating properties in 13 distinct geographies.

The company expects the acquisition of Ameristar's properties will complement its existing portfolio by adding eight casino-resorts in some of the nation's best gaming markets, including St. Charles near St. Louis as well as Kansas City in Missouri, Council Bluffs in Iowa, Black Hawk in Colorado, Vicksburg in Mississippi, East Chicago in Indiana, and Jackpot in Nevada.

However, the FTC's complaint alleges that the merger of the two companies will result in increased prices and lower quality for customers in the St. Louis area, where Pinnacle and Ameristar are direct competitors, and in the Lake Charles area, where the parties will directly compete beginning in 2014.

In particular, the agency noted that the transaction increases Pinnacle's ability and incentive to raise prices following the acquisition, to the detriment of customers. This could be in the form of less favorable hold rates, rake rates, table game rules and odds, and lower player reinvestments.

The FTC's complaint also alleges that the transaction diminishes Pinnacle's incentive to maintain or improve the quality of services and amenities to the detriment of casino customers in the St. Louis and Lake Charles markets. Additionally, in the St. Louis market, the complaint alleges that the transaction substantially increases the likelihood of coordinated interaction.

In the St. Louis metropolitan area, Pinnacle's acquisition of Ameristar would reduce the number of casino service providers from four to three.
In the Lake Charles market, Pinnacle already operates one casino, while Ameristar is building a new casino that is set to open next year and will be located directly adjacent to the existing Pinnacle casino.

According to the FTC, the new casino will be Pinnacle's closest and most significant competitor in the Lake Charles market and will also have a direct and substantial impact on the market share, revenues, and profits of Pinnacle's existing casino.

PNK closed Wednesday's trading at $18.92, down $1.70 or 8.24 percent on a volume of 5.85 million shares. ASCA closed Wednesday's trading at $25.91, down $0.39 or 1.46 percent on a volume of 9.56 million shares.

by RTTNews Staff Writer

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