In a move that significantly increases their viability in the gaming industry, Pinnacle Entertainment announced on Friday plans to purchase the Ameristar Casinos portfolio of properties.
The deal between the two companies was reported by the Las Vegas Review-Journal’s Howard Stutz to be for $869 million, merging the two companies into a much more powerful entity. It would double the size of Pinnacle Entertainment, according to Stutz, giving them over 5000 hotel rooms, 23,500 slot machines, 640 table games and nearly 16,000 new employees. The deal, which will have to be approved in the nine states where Ameristar was operating, is expected to be completed by mid-2013.
The Pinnacle/Ameristar merger will give new markets for Pinnacle, according to Pinnacle Chief Executive Officer Anthony Sanfilippo, moving them into areas such as Colorado and Iowa where Pinnacle previously had no presence. They would add to their properties in Indiana and Nevada, but a potential problem would loom in two other markets. In Louisiana and Mississippi, the new Ameristar properties would give Pinnacle a virtual monopoly on gaming in the industry, something that will test the two state’s anti-trust laws.
If all the regulatory bodies approve, the new Pinnacle Entertainment would stretch across the United States. 17 gaming properties, including the popular Pinnacle outlets in St. Louis such as Lumiere Place and River City, would be under the Pinnacle umbrella. Pinnacle will be continuing construction on what would have been another property in the Ameristar chain in Lake Charles, LA, which broke ground last summer. Plans are to join it with the property that Pinnacle already owns in Lake Charles to create a resort destination for gambling.
Estimates are that the new Pinnacle would generate revenues of $2.4 billion (using this year’s numbers from the two companies) and would place them on the field with other such “regional” casino outlets such as Penn National Gaming and Boyd Gaming.
“Given the limited overlap of properties between Pinnacle and Ameristar, on paper, this deal makes total sense,” Stutz quotes Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski as saying to investors. “With regional gaming markets coming under pressure given additional competition, coupled with the number of gamblers in the U.S. declining, we believe it makes total sense for certain regional gaming operators to team up in order to eliminate duplicate costs, especially on the promotional and marketing side.”
In 2009, Pinnacle had already become a partner with Ameristar, purchasing a large stake in the company with the currently executed merger the eventual endgame. The merger was held up, however, after the death of Ameristar’s founder, Craig Neilsen, who held the majority interest in the company. When his charitable foundation (which took over the interest’s ownership) sold off its stock in the company last year, the groundwork was laid for the Pinnacle/Ameristar merger to actually take place.
It’s been a busy year for Pinnacle Entertainment. Pinnacle bought the entirety of Federated Sports & Gaming in June, which included the Epic Poker League, the Heartland Poker Tour, the Global Poker Index and various other properties, after FS&G filed for bankruptcy earlier in the year. Two months later, Pinnacle would sell off the GPI to Zokay Entertainment for an undisclosed price while continuing onward with the hugely successful Heartland Poker Tour.
Pinnacle looks to be a solidly run operation if you look at the bottom line. In July, their second quarter financial reports vastly outpaced their performance from 2011. Their EBITDA jumped 24%, from $58.7 million to $73.2 million, while their operating income also skyrocketed from $16.9 million in the second quarter 2011 to $38.8 million in 2012. Following the announcement of the Ameristar deal on Friday, Pinnacle saw its stock price rise to $16.20 (up from a start of $14.16) and Ameristar stockholders also got a boost, with their price moving up to $26.50 (the share price of the acquisition) from $22.07 at the start of the day on Friday.
The acquisition is turning out to be rather entertaining. Sanfilippo addressed the Ameristar Corporate staff today with words of comfort and integrity. He made it clear to the Ameristar team, “they should not believe anything they hear.” Later in the afternoon we spoke with a colleague at Pinnacle and were told that it had just come down from management that Pinnacle staff was not to speak with Ameristar staff. Now why in the world would Pinnacle Management do that? Hmmmmmmm……..