Penn National Gaming purchase still unsettled

As uncertainty mounts over the pending $6.1 billion deal by two private-equity firms to acquire Penn National Gaming Inc., at least one Wall Street firm has moved to suspend its investment rating of the gambling company's stock.

Susquehanna Financial Group L.L.P. issued a statement today that it was taking the action over uncertainty as to whether the Wyomissing, Pa., company will be acquired by Fortress Investment Group L.L.C. and Centerbridge Partners L.P. for $67 a share.

"There is risk that the deal falls apart and the stock returns to pre-deal levels," Susquehanna gambling analyst Robert LaFleur wrote in a note to investors. "Thus, we are suspending our rating until we have more clarity on the prospects of the deal closing."

The protracted deal offers a window into the impact of the changed economy over the last year and the continuing turmoil in the capital markets that has made acquiring financing for multibillion-dollar deals extremely difficult - even for purchasing successful gambling companies.

Penn National, which earlier this year opened Hollywood Casino, a slots parlor and racetrack just outside Harrisburg, issued a "no comment" in response to Susquehanna's decision.

Fortress Investment Group and Centerbridge Partners, both of New York, also refused to comment on whether the deal was in trouble.

Earlier this month, Penn National got approval for a 120-day extension of the deal's closing date to Oct. 13. The deal had been set to close June 15.

The company's shares have been on a downward spiral over the last few months as the deal has dragged on. Besides paying $6.1 billion for the company, the two private-equity firms had agreed to acquire $2.8 billion of Penn National's debt.

Penn National's stock finished trading at $32.50 a share on the Nasdaq, not much more than half of what it traded for when the deal was announced June 15, 2007. Penn National shares closed at $62.12 that day - a one-day gain of more than $11.

Less than three years ago, Penn National was on a high note. It acquired riverboat-gambling company Argosy Gaming Co., of Illinois, for $2.2 billion in October 2005, a deal that doubled its size and its annual revenue, to about $2 billion, and made Penn National one of the top-four biggest U.S. gaming companies.

Penn National reported $2.4 billion in revenue last year, and it has 19 properties in 15 markets. It is aggressively trying to add Atlantic City, and it put in an $800 million offer earlier this year to buy Bader Field, a 150-acre parcel near the Boardwalk, to build casinos.

The volatility of the stock in recent months is tied directly to the uncertainty of the current deal, some say.

"Given the downturn in many gaming markets and the state of the credit markets, such speculation is not surprising," said Joseph Weinert, senior vice president of Spectrum Gaming Group L.L.C., a gaming-consultant firm in Linwood, N.J.

"Fundamentals are clearly playing no role in the trading of the stock," LaFleur said of Penn National, "and day-to-day handicapping of the deal's prospects has become the primary mover of the stock."

Penn National is not the only industry firm facing financing woes.

Some casino developers in Las Vegas and Atlantic City have had to indefinitely postpone major projects, including Pinnacle Entertainment Inc.'s plans for a $1.5 billion gambling palace on the Atlantic City Boardwalk, as the lending markets have dried up.

Susquehanna cited the continuing lending turmoil and revenue downturns in key gaming markets for Penn National where recent smoking bans have been enacted, including Illinois and Colorado, as other negatives.

The financial firm also pointed to pending slots competition in Maryland, a key feeder market for Penn National's most profitable property - Charles Town Races & Slots in Charles Town, W.Va.

Maryland voters will vote on a referendum on whether to legalize 15,000 slot machines in November, which could take substantial business away from Charles Town Races & Slots.