Shares of Penn Entertainment (NASDAQ: PENN) were halted late Thursday and subsequently rallied following a report indicating that Boyd Gaming (NYSE: BYD) may be preparing a takeover bid of more than $9 billion for the regional casino operator.
Boyd Gaming’s Fremont Hotel and Casino in downtown Las Vegas. The operator is rumored to be considering a $9 billion offer for rival Penn Entertainment. (Image: Vegas Means Business)
Citing unidentified sources, Reuters reported that Las Vegas-based Boyd may be considering an acquisition offer that values Penn at more than $9 billion, including debt. Neither company has publicly commented on the report. The rumor arrived nine days after Boyd appointed Michael Hartmeier to its board of directors, stoking speculation that the company could make a run at Penn.
He served as the former group head of lodging, gaming, and leisure investment banking for Barclays where Penn CFO Felicia Hendrix was a managing director for 12.5 years and her time there overlapped with that of Hartmeier. The two previously worked together at Lehman Brothers.
Today’s report arrived three weeks after Penn investor the Donerail Group sent a letter to the gaming company’s board of directors encouraging it to sell itself following a series of costly missteps in the online sports wagering space. Should Boyd proceed with a $9 billion offer for Penn, that’d value the target at more than triple its current market capitalization of $2.72 billion.
Lots of Moving Parts in Potential Boyd/Penn Deal
Should Boyd, or any suitor for that matter, offer $9 billion for Penn and that deal closes, it’d represent the largest transaction in the casino industry since Eldorado Resorts paid $17.3 billion for Caesars Entertainment (NASDAQ:CZR) in 2020.
While Boyd sported a market cap of $5.1 billion as of late Thursday, its enterprise value of $7.8 billion implies it might need to head to capital markets, either by way of issuing debt or equity, to consummate a deal with Penn.
Additionally, there could be regulatory hurdles as Boyd and Penn operate in many of the same states, including Illinois, Kansas, Louisiana, Nevada, and Pennsylvania, among others. Regulators in those jurisdictions and others could be concerned about competition issues or the possibility that an acquisition of this size could lead to asset sales.
Then there’s the issue of property ownership. The bulk of Penn’s casinos are on land owned by Gaming and Leisure Properties (NASDAQ: GLPI), which would likely have some say in a potential sale of the operator — its largest tenant. Boyd currently has a relationship with GLPI, but the casino operator’s long-standing preference is to own the land on which its gaming venues reside.
What About ESPN Bet?
Should Boyd and Penn come to terms, it’s also likely Walt Disney would have some say in the matter. Last August, Penn agreed to pay Disney-owned ESPN $1.5 billion in stock over 10 years for rights to use the networks name on the ESPN Bet mobile sports wagering application. Penn also granted ESPN $500 million in equity warrants that vest over that decade.
Penn’s control of ESPN Bet could potentially be a thorny issue because Boyd owns 5% of FanDuel — the largest sports betting app in the country.
Assuming Boyd is in talks with Penn, it’s not a stretch to assume the suitor’s interest centers more around land-based casinos than it does online sports betting because outside of Nevada, Boyd has been content to enjoy its relationship with FanDuel and its passive investment in that company.
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