PENN price drop shows concern over buyout

Mar 4, 2008 7:27 AM

Closing on the buyout of Penn National Gaming Inc. (PENN) is just three months away but based on the marked decline in the price of the company’s shares there are many investors betting it will never happen.

For months now, speculators have been wondering whether the buyers — Fortress Investment Group LLC and Centerbridge Partners L.P. — will find the necessary cash during the current credit crunch to pay each shareholder $67 per share.

As word of a weakening economy has spread, Penn National’s share price has dropped. On Monday, it closed at $44.04

There was similar concern about Harrah’s Entertainment Inc. as the closing date of its takeover by the partnership of Apollo Investments and Texas Pacific Group but that buyout was accomplished without incident.

Still investment advisers keep pointing to the many gaming projects that have been put on hold and cancelled completely because of the lack of funding.

Respected Deutsche Bank analyst Andrew Zarnett recently was quoted as saying, "The credit markets are temporarily closed. That doesn’t mean you can’t raise money if you’re willing to pay a very high rate of interest. But on anything at a reasonable rate, now wouldn’t be the time."

Followers of the company who have studied the buyout agreement point out that Fortress and Centerbridge have their financing in place with both Wachovia and Deutsche Bank. But if they decide to walk away, they must pay a breakup fee of $200 million.

And although the $67 per share offer is a far cry from the current trading value of the shares, it has been noted that the acquirers can go to the open market and buy shares at the lesser price, thus reducing the amount they will have to pay at closing.

The agreement requires that if the deal does not close on June 15 the buyers must add a few pennies per share per day for each day beyond that date.

Eminent friends

Pennsylvania businessman Louis DeNaples may not have many friends in law enforcement (many think he’s mob connected) but they sing his praises at the University of Scranton.

 Last week, Scranton Bishop Joseph F. Martino thanked DeNaples for helping fund the University’s new $35 million student center, which has been named after DeNaples’s parents.

 "I congratulate the DeNaples family," the Roman Catholic bishop said. "I don’t know what I’d do without the assistance I receive from this wonderful family."

DeNaples, who received a gaming license for his Mount Airy Casino Resort but has since had it pulled, is facing perjury charges for denying a relationship with reputed mob boss Russell Bufalino.

Joining in the celebration of the Mass at the University last week was Rev. Joseph Sica, who grew up with the DeNaples family, and who also faces perjury charges in the case.

New role

A dozen years ago, Danny Adkins was running around Las Vegas casinos trying to get more race book operators interested in taking wagers on Hollywood Greyhound Park in Florida.

Today, his principal role is finding an experienced staff to operate a casino in Nitro, West Virginia.

He still has the same employer, the partnership of Hartman and Tyner of Detroit, Mich., whose gaming investments include horse and dog tracks, and also the Tri-State Racetrack & Gaming Center that is being transformed into a casino called Mardi Gras Gaming.

Recently, Adkins announced the appointment of Richard Tessler, whose gaming experience was developed at Foxwoods Resort & Casino in Connecticut. Other experienced personnel will soon follow, Adkins said.

THE INSIDER: International Game Technology (IGT) says it plans to invest more than $1 billion over the next five years on research and development in order to maintain its substantial market share lead in the industry.

Also, IGT announced it would pay a $0.14 per share regular quarterly dividend on April 2 to shareholders of record on March 19.

Boyd Gaming Corp. (BYD) will open its second hotel tower at the Borgata Hotel Casino & Spa in Atlantic City in June.

Analysts at Goldman Sachs cut the earnings outlook for MGM MIRAGE Inc. (MGM) to $1.95 per share for the year 2008 from the previous $2.55 per share.

Brean Murray analysts have downgraded the shares of Isle of Capri Casinos Inc. (ISLE) from a "buy" to a "hold."