Report Suggests Potential $9 Billion Merger Proposal from Boyd Gaming to Penn Entertainment
Shares for Penn Entertainment (NASDAQ: PENN) were temporarily stopped and later surged after a report suggested that Boyd Gaming (NYSE: BYD) could be planning a takeover bid worth over $9 billion for the regional casino operator.
According to anonymous sources, Reuters reported that Boyd might be considering an acquisition offer that values Penn at more than $9 billion, including debt. Neither firm has made any official statements regarding the report. The rumor surfaced a week after Boyd appointed Michael Hartmeier to its board of directors, sparking speculation that they could make a move on Penn.
Hartmeier previously worked as the group head of lodging, gaming, and leisure investment banking for Barclays, where Penn's CFO, Felicia Hendrix, served as a managing director for 12.5 years. Their tenures overlapped during their time at Lehman Brothers.
The news arrived three weeks following a letter from Penn investor, the Donerail Group, to the gaming company's board of directors, urging them to sell themselves due to costly mistakes in the online sports wagering sector. If Boyd were to propose a $9 billion offer for Penn, the target's value would exceed its current market capitalization of $2.72 billion by more than three times.
Multiple factors in potential Boyd/Penn deal
If Boyd, or any potential suitor, were to offer $9 billion for Penn, and the deal were to go through, it would be the largest transaction in the casino industry since Eldorado Resorts paid $17.3 billion for Caesars Entertainment (NASDAQ:CZR) in 2020.
With a market cap of $5.1 billion as of Thursday, Boyd's enterprise value of $7.8 billion implies they might need to seek financial backing, either through issuing debt or equity, to finalize a deal with Penn.
There could also be regulatory obstacles as Boyd and Penn operate in several of the same states, such as Illinois, Kansas, Louisiana, Nevada, and Pennsylvania, among others. Regulators could raise concerns about competition issues or the possibility that an acquisition of this size could lead to asset sales.
Furthermore, there's the issue of property ownership. The majority of Penn's casinos are located on land owned by Gaming and Leisure Properties (NASDAQ: GLPI), which would have some control over a potential sale of the operator—their largest tenant. Boyd currently has a connection with GLPI, but they prefer to own the land where their gaming venues are situated.
What about ESPN Bet?
If Boyd and Penn reach an agreement, ESPN could have some involvement. In August 2020, Penn agreed to pay Disney-owned ESPN $1.5 billion in stock over 10 years for the rights to use the network's name on the ESPN Bet mobile sports wagering application. Additionally, Penn granted ESPN $500 million in equity warrants that vest over a decade.
Penn's control of ESPN Bet could potentially create complications because Boyd owns 5% of FanDuel—the largest sports betting app in the country.
Assuming Boyd and Penn are in discussions, it's reasonable to assume that the suitor's interest focuses more on land-based casinos rather than online sports betting, considering they are content with their relationship with FanDuel and their passive investment in the company outside of Nevada.
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