In connection with the termination of the merger agreement, Penn National will receive nearly $1.48 billion, including a $225-million cash termination fee and the purchase of $1.25 billion of Penn National preferred stock by the JV and its equity partners, according to a prepared release. A non-refundable deposit of $700 million was to be wired to Penn National today, according to the release, followed on July 18 by a payment of $775 million to the escrow agent upon the issuance of Series B redeemable preferred stock.
"Based on discussions between Penn National Gaming and PNG, it became apparent to Penn National and its board of directors that the proposed merger transaction would not be completed without significant and lengthy litigation which is inherently unpredictable," Penn National says in the release. "Further, it also became apparent to the company and its board that a re-negotiated, reduced purchase price was not a viable option."
Along with the prospect of litigation, the company also cites uncertainty in "successfully navigating the remaining regulatory approvals and credit facility conditions for funding." As reported on GlobeSt.com in May, when the Pennsylvania Gaming Control Board signed off on the sale, the agreement still awaited approvals in several states. However, the number of states shrank from six to five last month as the Iowa Gaming and Racing Commission gave its okay. The number of pending regulatory approvals was a major factor in the company's decision last month to extend the expiration date of the agreement by 120 days.
Other reasons for terminating the sale, as cited by Penn National in the release, were "current economic conditions, the state of the capital markets and the gaming industry outlook." In a conference call following this morning's announcement, Penn National CEO Peter Carlino noted that gaming customers lately have visited casinos less often and usually spend less while they're there.
In the prepared release, Carlino calls the termination of the agreement "the company's best alternative to the uncertainty of litigation and delivers immediate tangible and material value to our stockholders. Importantly, we are confident that we can very effectively deploy this capital to generate significant value for our stockholders based on our well established track record of delivering long-term growth through a focus on return on investment and disciplined financial and risk management. In this regard, we believe the substantial capital infusion will enable Penn National to be aggressively opportunistic at a time when gaming industry valuations appear very attractive."
During the conference call, Carlino noted that the prospect of acquiring existing properties in Las Vegas is "looking better." He also pointed to an upcoming referendum in Maryland, which if approved by voters in November would allow gaming in the state. "We have a great piece of ground there if that should happen," Carlino said. Including the Hollywood Casino in Grantville, PA, the company operates gaming facilities in 14 states and the Canadian province of Ontario.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
