Despite Pessimistic Analysts, PENN Taking Boyd Purchase Offer Seriously

Written By Adam Hensley on July 3, 2024
Analysts looking at data on a computer

After experts believed the notion of Boyd Gaming buying PENN Entertainment was more of a pipe dream than reality, it appears that might not be the case.

In a recent report, Earnings + More said that the bid from Boyd is “being taken seriously.”

It would certainly have a major impact on Missouri’s casino industry. Combined, the two operate nearly half of the casinos in the Show Me State.

Boyd would own 5 casinos in Missouri if sale went through

There are currently 13 riverboat casinos in the state. Lawmakers have not legalized Missouri online casinos, but sweepstakes and social casinos are the state’s only option for now. They use virtual dollars, and in most cases, prizes can be redeemed for real money.

PENN currently operates three casino properties in Missouri. They accounted for 35% of the state’s adjusted gross revenue ($671.7 million) last year.

Boyd operates two casinos in the state, but they are a bright spot in the company’s portfolio. Buying PENN and taking on its properties would mean the company would operate five of the state’s casinos. In that scenario, gaming regulators would almost certainly require Boyd to sell one or more of its Missouri properties.

That’s what happened when Eldorado Resorts bought Caesars Entertainment. After the sale, Eldorado owned six casinos in Missouri. Regulators required them to sell off two locations before approving the deal.

Sale would probably take a long time to finalize

One anonymous source told Earnings + More that investors might be enticed by “having a holding in a better-run company with better prospects.”

According to the Earnings + More report:

“Sources indicated this week that activist investors on shareholder register at PENN would be supportive of a deal at $25 a share if it involved cash and a proportion of Boyd shares.”

Wells Fago and Deutsche Bank analysts previously said a sale would be complicated.

The two expressed concern about Boyd’s potential monopoly on the Missouri casino market.

It becomes complicated on a national level. PENN has casino locations across the country, and Boyd does, too. There’s a chance that if the sale happened, Missouri might not be the only state Boyd would have to sell off some of its casinos in. It would take time to gain the approval of several states and their regulatory bodies. It’s certainly not an overnight deal.

Wells Fargo and Deutsche Bank also had worries over what would happen with ESPN BET, PENN’s online sportsbook product.

According to Earnings + More, one of its anonymous sources believes these concerns can be “smoothed away.”

“Disney, for instance, would only get involved if there were a separate transaction for ESPN BET, while Gaming & Leisure Properties wouldn’t get involved unless there was a change in lease terms and would likely be supportive of any forced property sales.”

What’s next for Penn?

Earnings + More reported that the prospects of investors gunning for a proxy battle next summer over board seats is likely weighing heavily on the minds of PENN’s board. Especially since more than a third of its shareholders recently rejected Chairman David Handler’s compensation. And a quarter refused to back his reappointment.

Some on the board might be hoping football season gives the company a revenue boost to avoid a proxy battle. A source told Earnings + More that football might not be enough to stave off a fight.

“If you really believe the NFL season will be your magical savior, you might want to see how September and October go. … But as you get further into the year, you are getting closer to a proxy fight, which could absolutely eviscerate you.”

Penn’s second-quarter earnings call is Aug. 8. Its plans moving forward could be revealed then.

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Adam Hensley

Adam Hensley is a journalist from Des Moines, Iowa, with experience covering online sports betting and gambling across Catena Media. His byline has appeared in the Associated Press, Sports Illustrated and sites within the USA Today Network. Hensley graduated from the University of Iowa in 2019 and spent his college career working for the Daily Iowan’s sports department, both as an editor and reporter.

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