Investers bid $6.1B cash for Penn Gaming Bangor facility to move ahead as planned

Racetrack and casino operator Penn National Gaming Inc., which owns Hollywood Slots at Bangor, said Friday it agreed to be acquired by funds managed by two investment companies for about $6.1 billion in cash.

Penn National, with net revenue of $2.2 billion in 2006, operates 18 gambling facilities stretching from Maine to New Mexico as well as Ontario, Canada. The company is in the midst of constructing a permanent $131 million gaming and hotel complex that would replace its interim Hollywood Slots at Bangor facility in the former Miller’s Restaurant building on Main Street.

“This purchase of our company by these two firms will not have any impact on our permanent facility here in Bangor,” said Jon Johnson, general manager for Penn National’s operations in Maine. “We are committed to moving ahead with the project as planned and we’re looking forward to an opening in the summer of 2008.”

The deal is estimated to close in 12 to 16 months, Johnson said. By that time, the new Hollywood Slots at Bangor, being built on Main Street across from Bass Park, might already be open.

Under the buyout proposal, Penn National shareholders will receive $67 in cash for each share, about a 31 percent premium over the company’s closing price of $51.14 on Thursday.

The buyers, led by Fortress Investment Group LLC, a publicly traded asset management company, and private equity firm Centerbridge Partners LP, will also repay $2.8 billion in Penn National’s outstanding debt.

Penn National’s properties include four Hollywood Casinos in Louisiana, Illinois and Mississippi; Argosy casinos in Illinois, Indiana, Missouri and Iowa; and the Boomtown Casino in Biloxi, Miss. In addition to Bangor, it has racetracks, some with slots, in West Virginia, New Jersey, Pennsylvania, Ohio and New Mexico.

It opened Hollywood Slots of Bangor in November 2005.

“This transaction will bring Penn National Gaming new owners who share our vision and support our long-term strategy of growth through continued capital investments in our existing properties,” Penn National Chairman and CEO Peter M. Carlino said in a prepared statement issued Friday.

“I know the Penn National Gaming corporate and regional management teams and our 15,000 talented employees are looking forward to working with Fortress and Centerbridge to ensure the ongoing competitiveness of our facilities and the substantial growth opportunities made possible by our business model and strategy,” Carlino said.

Gov. John Baldacci said his office is in contact with officials at Penn National.

“Maine law requires the new owners to go through the same rigorous review and background checks that Penn National went through, financial and ethical reviews,” Baldacci said in a telephone interview.

George McHale, chairman of the Maine Gambling Control Board and of the Maine Harness Racing Commission, said his regulatory agencies will not be involved until the deal receives approval from federal regulators.

“I have sent inquiries to the Attorney General’s Office, … but we envision no immediate problem at all. Penn National is a very good company. We’ll do a background check on [the new owners], their key executives, etc., and Penn National is looking at those same things too,” McHale said.

Dan Tremble, Penobscot County treasurer and a member of the board of directors of the Bangor Region Chamber of Commerce, said Penn National has a reputation for being “very forthright and open.” Tremble served as mayor of Bangor in 2004, when Penn National came to Bangor.

“I’d take Jon Johnson’s word,” Tremble said, referring to Johnson’s statement that the acquisition will not change Penn National’s plans for its Bangor complex. “Private investment firms wouldn’t be interested in [Penn National] if they didn’t like the way they were running. I can’t imagine they’d change the formula in place.”

Shares of the Wyomissing, Pa.-based company surged $10.98, or 21 percent, to $62.12 Friday after rising to a 52-week high of $63.68.

The buyout news boosted shares of other casino operators as well. Pinnacle Entertainment Inc. rose $2.35 to $30.83, Isle of Capri Casinos Inc. tacked on $2.45 to $25.09, and MGM Mirage climbed $3.48 to $85.70.

MGM is considering a bid from its majority shareholder, a group controlled by Kirk Kerkorian, to buy two of its Las Vegas properties and possibly restructure the company.

The Penn National board is recommending that its shareholders take the deal announced Friday. The deal must also get clearance from government regulators.

The company has the right to solicit a better bid from other parties during the 45 days following the execution of the agreement.

“Penn National has a lot of value,” said Lawrence Klatzkin, an analyst at Jefferies & Co. “It’s asset-backed. It has strong predictable cash flow. It’s in a regulated industry and has limited competition. It has very strong, solid cash flow streams.”

Penn National’s buyers are paying a premium, but they’re getting a well-run company with management that’s going to stick around, said Justin Sebastiano, an analyst with Nollenberger Capital Partners.

Key members of Penn National’s management team, including Carlino, Chief Financial Officer William Clifford and Leonard DeAngelo, executive vice president of operations, are expected to stay with the company.

If the deal isn’t completed within a year, the purchase price can be increased by $0.0149 per share per day.

The Associated Press contributed to this report.