Multiple gambling experts and analysts are putting a potential Boyd Gaming buyout of PENN Entertainment on hold. Boyd Gaming is the smaller company of the two and needs strong financial backing to make a deal, along with jumping over many regulatory obstacles.
Yet, on Friday, Earnings+More reported a buyout might just be more likely than reported earlier this week.
The chatter of PENN Entertainment being available has come from disgruntled investors amid poor performance, especially online. Those talks intensified when Reuters reported last week that Boyd Gaming approached PENN Entertainment in regards to a possible buyout.
With so much needing to happen to make one happen, it was looking more and more unlikely by the day, until Earnings+More gave its most recent assessment.
Earlier this week, skepticism grew of a potential Boyd-PENN buyout
PENN Entertainment has been through its share of turmoil, which has caused concern among some of its top investors, who even recommended selling the company.
However, that doesn’t appear to be likely in the near term, especially as CEO Jay Snowden focuses on righting the ESPN BET ship as football season approaches.
The Reuters report seemed to align with Boyd Gaming’s hiring of Michael Hartmeier to its board earlier this month. Hartmeirer has a 25-year track record of completing several financing and advisory assignments for gaming companies, totaling $125 billion.
David Katz, an analyst for Jefferies Equities Research, called the report “unconfirmed.” Katz also reported on meetings that PENN conducted last week to the CDC Gaming Reports.
“Following meetings with PENN management last week at our Nantucket conference, we continue to think some change is inevitable, given conflicting views between investors and the company,” Katz said.
While that quote can be interpreted in different ways, Katz did not bring up the specific topic of selling assets or the company. Managing director of B Global and well-known gaming consultant, Brendan Bussmann, made his stance clear, calling a merger “almost ridiculous.”
“I don’t see all of Penn being bought out, especially by Boyd. It would be too difficult for a host of reasons” he said. “While it sounds good on the surface, it doesn’t in the end get to the reality of how this would work.”
Bussmann did note than PENN could be willing to sell certain assets down the line.
The Wells Fargo team told the Earnings+More newsletter earlier this week that PENN investors “believe the company is worth significantly more than Boyd Gaming may be willing to pay.” That in itself would make a deal unlikely.
Stock prices indicate a deal is far from happening
One of the reasons investors of PENN have voiced displeasure publicly is because of the company’s declining stock price. PENN’s stock is down 29% YTD as of Thursday afternoon.
However, when rumblings of a potential sale emerged, PENN’s stock rose price 13% earlier this month. It went down 11% when sources told the Earnings+More newsletter that a sale was not imminent. After stock price jumped 8% after the Reuters report, PENN’s price is down nearly 7% since Monday.
Boyd’s price, on the other hand, dropped 3.3% when news circulated of potential interest in PENN. With hearing about the difficulties of a potential merger, Boyd’s stock has rebounded to be up 2.6% this week as of Thursday afternoon.
It appears as if investors get excited for PENN when speculation of a buyout is public. For Boyd, there appears to be fear from investors in taking PENN on.
While Boyd may or may not have kicked the tires, many variables must fall into place, for Boyd especially, being the smaller company.
A deal still appears to be unlikely at this time, and PENN has its sights set on improving ESPN BET for the upcoming football season.
But hold your horses, a sale might be more likely than previously thought
However, on Friday, Earnings+More reported that, “activist investors on the shareholder register at PENN would be supportive of a deal at $25 a share if it involved cash and a proportion of Boyd shares.”
One investment source said to the newsletter, on the condition of anonymity, that “the activists would maybe be enticed by having a holding in a better-run company with better prospects.”
Earnings+More also said other bidders for PENN may be in the mix, including Hard Rock. And there are rumors that PENN has “hired bankers at Goldman Sachs and Evercore to advise on the company’s options.”
All that means a sale might be more probable than first thought at the beginning of the week.
