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Best of Howard Stutz

Gaming Guru

Howard Stutz

Pinnacle Entertainment considers new proposal from GLPI

8 July 2015

Real estate investment trust Gaming and Leisure Properties, Inc. on Tuesday sweetened its 3-month-old proposal to acquire Pinnacle Entertainment’s land holdings Tuesday, offering a higher share price and better stock incentives.

Analysts believe it’s a foregone conclusion the merger will take place.

The transaction is now valued at $5 billion, up from $4.1 billion proposed in March.

In a letter to Las Vegas-based Pinnacle’s board, GLPI Chairman Peter Carlino said the new offer would also increase the ownership stake that Pinnacle shareholders would receive in the REIT.

J.P. Morgan gaming analyst Joe Greff told investors said he “would expect” Pinnacle to respond with details of a deal soon.

“We have a tough time envisioning a scenario where Pinnacle’s board and management could create the same value in the same time frame that GLPI’s deal would, and we don’t see the likelihood of a superior bid from another entity,” Greff said.

Gaming and Leisure, which is based in Pennsylvania, said it boosted the offer after its previous bids were rejected.

Under the proposal, Gaming and Leisure would pay $47.50 per share of Pinnacle and would give Pinnacle shareholders a 28 percent stake in the REIT.

Pinnacle, which operates 15 casinos in eight states, said last year it planned to divide the company into two separate publicly traded businesses — an REIT that would own the land under the casinos and an operating company that would make lease payments for the casinos.

According to the letter, Pinnacle would make annual lease payments of $377 million for the casinos.

“GLPI has committed financing in place and is ready to finalize this transaction immediately, and we would expect to close our transaction within approximately six months of signing,” the company said in a statement. “Nevertheless, Pinnacle continues to make new demands, delaying the signing of a definitive agreement and denying its shareholders a value-creating transaction that is clearly superior to Pinnacle’s previously announced standalone separation plan.”

In a brief statement, Pinnacle confirmed it received the GLPI offer and would review the “revised proposal and respond promptly.”

News of the increased proposal sent shares of Pinnacle up on the New York Stock Exchange, with the stock price closing at $39.64, an increase of $2.18 or 5.82 percent. Gaming and Leisure closed at $35.72 on the Nasdaq, down 95 cents or 2.50 percent.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said “the magnitude of the (proposal) is likely to exceed investors’ expectations.”

GLPI offered to save Pinnacle several steps — as well as $700 million in REIT development costs— by acquiring the casinos. Pinnacle doubled in size in 2013 when it bought rival Ameristar Casinos for $2.8 billion.

Gaming and Leisure was spun off from Penn National Gaming in 2013 when the regional casino operator placed 21 of its 29 casinos and racetracks — including M Resort — into the REIT. Penn has continued to manage the casinos under a lease.

Macquarie Securities gaming analyst Chad Beynon said he expected Gaming and Leisure to increase its offer for Pinnacle.

“The proposal is in line, or slightly above, with the value that Pinnacle could deliver through a standalone conversion, but could potentially offer a more seamless route,” Beynon told investors. “With GLPI’s corporate structure already set up, it would rid Pinnacle the need to find a separate management team and do a lot of heavy lifting and paper work. Also, given GLPI’s less burdensome debt structure, an equity raise would become unnecessary.”

REITs piqued the interest of gaming industry watchers after Penn spun off GLPI. Boyd Gaming Corp. and MGM Resorts International are exploring REITs. Caesars Entertainment is asking a bankruptcy court to split its largest operating division into a REIT as part of a restructuring process.

By law, REITs don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute 90 percent of their taxable earnings to shareholders.
Pinnacle Entertainment considers new proposal from GLPI is republished from