In a surprising turn of events, Boyd Gaming has made a bid for Penn Entertainment. While some industry experts expected this move, others remain skeptical about the ultimate outcome. Let’s delve into the details and explore the implications of this potential acquisition.
The Unfolding Drama
Deutsche Bank analyst Carlo Santarelli expressed his lack of surprise at Boyd’s interest in Penn Entertainment. However, he questioned whether Boyd would make a premium offer. The news first surfaced in The Nevada Independent and was later confirmed by Reuters. Santarelli believes that Boyd’s role may be that of a stalking horse—a strategic maneuver to facilitate a genuine acquisition process.
The High Stakes
Boyd’s approach comes at a time when Penn Entertainment faces challenges. The high short interest in Penn’s stock creates uncertainty, making it difficult for investors to take a position. Meanwhile, Boyd’s stock also presents challenges, given the lingering uncertainty surrounding the potential deal. The market’s initial reaction was knee-jerk, assuming that Boyd would find the lift challenging. However, Santarelli suggests that a reasonable valuation could lead to a favorable transaction for Boyd.
Valuation and Scenarios
Santarelli speculates that Boyd’s offer to Penn likely falls within the $25 to $30 per share range. Contrary to the reported $9 billion valuation, he believes that Boyd’s bid aligns more closely with this narrower range. But how can Boyd make this bid palatable? Let’s explore four scenarios:
Third-Party Intervention: If a third party acquires ESPN Bet (a subsidiary of Penn), it could substantially lower the acquisition price.
Preserving Non-Operating Losses: Boyd must maintain the value of Penn’s non-operating losses.
Redundancy Elimination: Eliminating redundancies in Penn’s operations (up to $150 million) would enhance the deal.
Backstopped Asset Disposition: Boyd could secure a third party to backstop the sale of Penn’s remaining brick-and-mortar assets at a price consistent with Boyd’s offer.
Boyd Gaming’s bold move has sparked intrigue in the gaming industry. Whether this bid materializes into a successful acquisition remains uncertain. As the negotiations unfold, investors eagerly await the next chapter in this high-stakes drama.
