Boyd Gaming Corporation
) recently inked a definitive acquisition agreement with Peninsula
Gaming, LLC. Per the agreement, Boyd Gaming will acquire Peninsula
Gaming for $1.45 billion, by year-end 2012.
Peninsula's five properties are spread across in three of the
country's most compelling geographic locations that made it a
lucrative acquisition target. The properties are Kansas Star Casino
near Wichita, Kansas; Diamond Jo Casino in Dubuque, Iowa; Diamond
Jo Worth in Northwood, Iowa; Evangeline Downs Racetrack &
Casino in Opelousas, Louisiana; and Amelia Belle Casino in Amelia,
The deal is in sync with the Boyd Gaming's strategy to grow
through geographical diversification. The to-be-acquired properties
also resonate with the psyche of Boyd Gaming's currently
operational portfolio. Once completed, Boyd management anticipates
that the acquisition will be accretive to earnings, net of
transaction costs as well as enhance free cash flow considerably
that will in turn help Boyd to de-lever in the coming days.
Additionally, Boyd management commented that the Peninsula
assets operate in flexible markets in the Midwest and Southern zone
of the country. Boyd gaming currently has Midwest and Southern
operations which are yielding high returns. Hence, the recent
acquisition will take Boyd's presence in that region to a new
The region is still under-penetrated by other gaming companies
and offers a relatively favorable tax and regulatory environment
which help drive EBITDA margins compared to those industry peers
doing business in other geographies. We also believe that less
stringency in regulatory procedures will facilitate a seamless
closure of the transaction.
We view the deal as strategically positive for both parties,
given that Peninsula Gaming is being paid an outstanding multiple
for its high-yielding portfolio. As of March 31, 2012, Peninsula
had a highly levered balance sheet with total long-term liability
of $713.8 million and cash and cash equivalents of $47.0
Boyd Gaming will fund the deal with $200.0 million in cash and
approximately $1.2 billion in debt at the Peninsula subsidiary. The
consideration will also include a note of approximately $144
million provided by Boyd Gaming. Further, the agreement says, Boyd
Gaming is entitled to pay some extra in 2016 if Kansas Star's
EBITDA exceeds $105 million in 2015. This extra amount would be 7.5
times more EBITDA over $105 million.
Boyd Gaming, which competes with the likes of
Penn National Gaming Inc.
), currently retains a Zacks #3 Rank that translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on the stock.
BOYD GAMING CP (BYD): Free Stock Analysis
PENN NATL GAMNG (PENN): Free Stock Analysis
To read this article on Zacks.com click here.