Penn Shares Jump After Deal Collapse

Penn Shares Jump After Deal Collapse
Photo: Anne M. Eberhardt/Blood-Horse Publications

Shares of Penn National Gaming Inc. rose July 7, following last week's news that two investment firms ended their planned $5.82 billion takeover of the casino and racetrack operator.

The stock jumped 98 cents, or 3.3%, to $30.64 in morning trading.

As part of the scrapped deal, Fortress Investment Group LLC and Centerbridge Partners LP will pay Penn National $225 million in cash as a termination fee, in addition to making a $1.25 billion investment.

So far this year, the company's stock price has tumbled amid weakness in the U.S. economy. Shares have dropped 50.2% year to date, but the company's board considered ending the deal preferable to negotiating a reduced purchase price.

Brean Murray Carret & Co. analyst Ryan Worst, who rates the stock "Buy," said the deal's termination presents an ideal chance for investors to purchase the stock.

"The new deal leaves a talented management team in the best position to capitalize on industry opportunities while most competitors are capital constrained," Worst wrote in a client note.

Worst's $41 price target implies upside of 38.2% to the July 3 close of $29.66.

Sterne Agee analyst Nicholas A. Danna upgraded Penn shares to "Buy" from "Hold," and set a $36 price target on shares. he said the $1.25 billion investment "can be considered an interest-free loan for seven years or a sale of equity at a significant premium to current market prices." This give Penn access to cheap capital at a time when its competitors have only limited or expensive access to such funding.

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