Pinnacle Entertainment Inc.
) recently inked a definitive acquisition agreement with
Ameristar Casinos Inc.
) to buy the latter through an all-cash deal worth $26.50 per
share by third-quarter 2013.
AMERISTAR CASIN (ASCA): Free Stock Analysis
BOYD GAMING CP (BYD): Free Stock Analysis
PINNACLE ENTRTN (PNK): Free Stock Analysis
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The purchase consideration includes Ameristar Casinos' total
enterprise value of $2.8 billion including debt of $1.9 billion
and cash on hand of $116 million as of September 30, 2012. The
offer price is at a 45% premium to Ameristar Casinos' average
closing stock price for the 90 days ended December 20, 2012.
We consider the deal to be strategically positive for both the
parties. For Ameristar, it holds immediate cash value for its
shareholders. The deal will likely benefit this casino gaming
company with the newest and most popular slot machines as its
acquirer also operates in the same vertical.
On the other hand, the acquisition holds significant potential
for Pinnacle Entertainment as well. Ameristar's eight properties
are spread across some of the country's most compelling
geographic locations like Missouri, Colorado, Mississippi,
Indiana, Iowa and Nevada that makes it a lucrative acquisition
target. Hence, the deal is in sync with Pinnacle Entertainment's
strategy to grow through geographical diversification.
Ameristar's assets are expected to be seamlessly integrated with
Pinnacle's current operational portfolio. The integration will
more than double Pinnacle's size to 17 operational properties in
13 different geographies. Location-wise, the properties of both
the companies are least likely to overlap.
Pinnacle is confident about deriving significant synergy off the
deal. The acquirer anticipates that this unison will garner scale
advantage of at least $40 million annually, with the amount
scaling up as the integration process moves forward. The
acquisition of Ameristar is expected to be accretive to
Pinnacle's free cash flow and earnings per share subsequent to
the closure of the deal.
Recently,, casino industry operators have been striving hard to
gain market share through sector consolidation. While the step
enhances operational efficiency, it alleviates competitive
pressure as well. In May this year, another casino operator
Boyd Gaming Corporation
) also embarked on a high-budget acquisition of Peninsula Gaming
(worth $1.45 billion). Currently, Ameristar has a Zacks #3 Rank
short-term 'Hold' rating.