Penn Shares Jump After Deal Collapse

Penn Shares Jump After Deal Collapse

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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