PNGI Terminates Merger Agreement
by Blood-Horse Staff
Date Posted: 7/3/2008 1:06:30 PM
Last Updated: 7/4/2008 10:26:21 AM

Penn National Gaming Inc. has entered into an agreement with PNG Acquisition Co., an entity indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC and Centerbridge Partners, L.P., to terminate the proposed merger agreement whereby PNGI was to be acquired by PNG Acquisition Co. for $67 per share, the company said July 3.

In connection with the termination of the merger agreement, PNGI will receive $1.475 billion—a $225-million cash termination fee and the purchase of $1.25 billion of PNGI’s redeemable preferred equity due 2015—by affiliates of Fortress, affiliates of Centerbridge, affiliates of Wachovia, and affiliates of Deutsche Bank.

Based on discussions between PNGI and PNG Acquisition Co., it became apparent to PNGI and its board of directors that the proposed merger transaction would not be completed without significant and lengthy litigation. Further, it also became apparent that a re-negotiated, reduced purchase price was not a viable option, the company said.

PNGI, based in Wyomissing, Pa., determined the likelihood of successfully navigating the remaining regulatory approvals, credit facility conditions for funding, and likely litigation required to complete the task was highly uncertain. Accordingly, PNGI, in consultation with external legal and financial advisers, determined that terminating the agreement under the aforementioned terms brings the most certain value to shareholders given current economic conditions, the state of the capital markets, and the gaming industry outlook.

“We are extremely disappointed that the company’s shareholders will not receive the $67-per-share merger consideration,” PNGI chief executive officer Peter Carlino said in a statement. “Our decision to enter into the agreements (announced July 3) follows a thorough evaluation of a wide range of alternatives for consummating the transaction. The prospect of employing litigation to enforce performance of the merger agreement would inherently expose the company to the significant risk related to a protracted legal process. We may be in the gaming business, but we would never gamble the company’s future and our shareholders’ best interest in this or any other circumstance.

“This transaction represents the company’s best alternative to the uncertainty of litigation and delivers immediate tangible and material value to our stockholders. Importantly, we are confident that we can very effectively deploy this capital to generate significant value for our stockholders based on our well-established track record of delivering long-term growth through a focus on return on investment and disciplined financial and risk management.

“In this regard, we believe the substantial capital infusion will enable Penn National to be aggressively opportunistic at a time when gaming industry valuations appear very attractive. Our ability to structure and integrate accretive, strategic acquisitions has been an important driver of Penn National’s long-term financial growth, and any such future activity would complement our current operations—including our recently opened facilities in Pennsylvania and Maine—and staggered pipeline of announced development projects including those in Indiana and Kansas.

“Finally, we are initiating guidance for 2008 EBITDA of approximately $682 million, and believe that this metric should be considered in conjunction with the considerable economic value of the settlement and our 14-year track record of creating value for shareholders to determine an appropriate value for Penn National Gaming’s assets, operations and growth prospects.”

Among the properties owned and operated by PNGI are Hollywood Casino at Penn National in Pennsylvania and Charles Town Races & Slots in West Virginia.



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