Does Boyd Gaming Board Move Signal Interest In Penn Acquisition?

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A recent board appointment by Boyd Gaming has market insiders wondering if the regional operator is interested in buying one of its top competitors, Penn Entertainment.

Boyd announced after market close Monday that it appointed Michael Hartmeier to its board of directors. Hartmeier brings an extensive investment banking background with 25 years spent at Barclays, Credit Suisse and Lehman Brothers.

Hartmeier “completed more than $125 billion in financing and advisory assignments, including work for numerous gaming companies,” the release said. He is currently a board member of DiamondRock.

The speculation comes after a letter to Penn’s chairman from an investor, the Donerail Group, expressed its frustration with the company’s interactive losses and called for a sale.

Penn stock up after appointment

PENN rose 2.7% Thursday to $19.05 on higher-than-average volume. It is the first time since March 13 the stock closed above $19.

The stock is now up 30.2% since the letter from the Donerail Group on May 31 and 10.4% since the appointment of Hartmeier.

Boyd, meanwhile, is up 4.1% since the news.

Truist: Unlikely to sell near-term

Barry Jonas of Truist does not expect Penn to undertake a strategic review in the near-term after meeting with management.

He pointed to a clear product roadmap for ESPN Bet, which he said he believes should hit key milestones in time for NFL betting. He also noted the timing of football season starting in a few months, as well as volatile interest rates that are impacting acquisitions.

Jonas raised his target to $25 on updated estimates based on 6.5x its 2025 retail EBITDAR plus $7 in value for interactive.

Could Boyd acquire all of Penn?

If Boyd is interested in buying the entirety of Penn, there are a few issues to consider.

Price is first and foremost: the stock may be undervalued because of its interactive struggles but it still has a ~$2.9 billion market value before a premium. Boyd, meanwhile, had $283.5 million in cash but more than $2.8 billion in long-term debt as of March 31.

The company had $1.2 billion available under its credit facilities at the end of the first quarter, but much of that could be for stock buybacks. Boyd announced an additional $500 million in buyback capacity in May, giving the company the authority to buy back more than $700 million in shares.

Boyd management said it is looking at acquisition opportunities, though it would have to be “uniquely opportunistic to be worth the additional leverage on the balance sheet,” Steven Wieczynski of Stifel said after its Cross Sector Insight Conference.

Third party likely needed

A deal between Boyd and Penn likely could not be completed without a third party buying some properties.

That is because Penn and Boyd have some significant overlap in states. The combined company would own 10 casinos in Louisiana, seven in Mississippi, five in Missouri and four in Illinois, which could trigger federal antitrust laws.

Penn faced a similar situation when it acquired Pinnacle, as did Eldorado when buying Caesars.

The positive swing to that is, it lessens the price for Boyd. Finding a third partner to buy multiple regional casinos may not be easy, though.

What about Penn-ESPN Bet deal?

It is unclear what Boyd would do with Penn’s agreement with Disney for ESPN Bet. The 10-year deal requires an annual $150 million payment to Disney.

Boyd paid $170 million to acquire Pala Interactive in 2022 to bolster its iGaming business. The company also owns 5% of FanDuel, which it received in exchange for primary market access through 2028 at Boyd’s properties with sports betting licenses.

Boyd management recently noted at a Stifel conference that its current share price gives the company no credit for that 5% stake.

Digital operations currently generate around $60 million in annual EBITDA. Any additional expansion is likely to be in iGaming to drive a tie between online and its retail casinos, management said.

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