Penn National Gaming and Pinnacle Entertainment confirmed Thursday afternoon that they are discussing a potential merger in which the former would acquire the latter in exchange for cash or stock consideration.
Such a merger would be the industry’s largest since Eldorado Resorts purchased Isle of Capri Casinos for $1.7 billion last year. A combined Penn National and Pinnacle entity would have generated $5.4 billion in revenues and $1.5 million in adjusted EBITDA during the full year 2016.
The Wall Street Journal first reported on the talks Thursday, with both companies subsequently confirming their interest while stressing that such a deal was no certainty. Neither company offered any further detail.
The Journal estimates the combined value of both entities at $13 billion.
Rumors of the talks first began to surface in early October, when the WSJ first reported that the there was interest between the two parties.
Anthony Sanfilippo, chief executive officer of Pinnacle, declined to comment on the matter during the company’s third quarter earnings call, instead telling analysts that “… we don’t speculate on rumors that [are] maybe out there and an article that got written that really didn’t say a lot. It was a strange article that came out and we didn’t comment on it and neither did any other source that would be considered credible. So, there’s really not much to say about that.”
However, Pinnacle executives had been discussing the company’s increasing appetite for growth by acquisition on previous conference calls, rendering the announcement that it is looking to sell itself to Penn National somewhat surprising.
“The point we tried to make [in the second quarter] and will make again now is that we think that we are in a good position. If we see opportunities to grow our portfolio and they’re sensible to us… (we will attempt) to execute on those opportunities,” Sanfilippo continued.
In light of those comments, several analysts were forecasting Pinnacle to be an active buyer during the quarter.
“With conventional net leverage of 2.3x and management’s comments around mergers and acquisitions, we believe PNK has the capacity to make an acquisition sizable enough to raise leverage to over 3x,” wrote Chad Beynon of Macquarie Research at the time.
Pinnacle shares were up after the announcement from $30.11 to $30.78, while Penn National grew from $28.63 to as high as $28.85 Tuesday
