Indy Gaming: Merger rumblings percolate after investor suggests Penn sell casinos
When a company’s stock price tumbles for a prolonged period, activist investors often weigh in and question management. That’s what happened with M Resort operator Penn Entertainment, which has seen shares decline more than 40 percent compared with its peers. Could Penn’s issues affect other gaming companies, including Nevada operators?
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A Los Angeles-based investment firm set off a speculation firestorm when it suggested Penn Entertainment sell all or some of its 43 casinos in 20 states.
Penn, which operates M Resort in Henderson and two rural Nevada casinos, saw its stock price jump 20 percent after a May 31 letter to the company’s chairman from Donerail Group was released on Business Wire. The missive heated the rumor mill after managing partner Will Wyatt wrote that “value could be realized” if the company was put up for sale.
Wyatt complained the company invested $4 billion in online gaming and sports betting efforts in the last four years with little return. He suggested casino sales would help rebuild shareholder value.
It also sparked rampant analyst conjecture on the odds of a large-scale merger — despite gaming’s relatively quiet acquisition market for the past 18 months.
“We expect proposed suitors to emerge, though their level of interest is likely to vary,” Deutsche Bank gaming analyst Carlo Santarelli wrote in a June 7 research note on the overall merger market after meeting with executives from eight Las Vegas casino operators. “We think creative structures are likely to be necessary in the current environment.”
Last week, a seemingly innocuous announcement by Boyd Gaming that it added former investment banker Michael Hartmeier to its board added fuel to the already simmering Penn speculation.
Don Bilson, an analyst for Gordon Haskett Research Advisors, said the appointment of Hartmeier — a director who handled deals in the lodging, gaming and leisure sectors — suggested the company could be looking at acquiring all or parts of Penn, according to a report by Seeking Alpha.
A Boyd spokesman said the company doesn’t comment on speculation.
Boyd operates 28 casinos in 10 states, overlapping in many of the same regional markets as Penn. As for Nevada, the company — which has 10 properties in the Las Vegas area — might have an interest in M Resort in Henderson.
A gaming source told me last week Penn is looking for a buyer for the 390-room M Resort, which is on track for a $206 million expansion that would add a second hotel tower and include more meeting space and other amenities. Penn announced the expansion plans in October 2022 and held a ceremonial groundbreaking last December.
Boyd operates the small Jokers Wild Casino on Boulder Highway in Henderson, but M Resort would give the company a location farther west with access from Interstate 15. It’s doubtful that Boyd is interested in Penn’s two small casinos in Jackpot, a rural northeastern Nevada community.
Truist Securities gaming analyst Barry Jonas met with Penn management and wrote in a research note that he didn’t believe Penn would undertake a strategic review. He also suggested that “higher and volatile interest rates” would quell any sales or merger activities.
“Penn is one of the most efficient land-based operators in our coverage,” Jonas wrote.
Penn, which does not operate sports betting in Nevada, bought Barstool Sports for $551 million in two transactions over three years. The company sold Barstool back to its founder for $1 when it struck a $1.5 billion deal with Disney Corp. to rebrand and relaunch its sports betting site as ESPN Bet. Penn also paid $2 billion in 2021 to acquire theScore, a Canadian-based sports media and technology company.
“We have no disagreements with much of these characterizations in the letter,” J.P. Morgan gaming analyst Joe Greff wrote in a research note hours after it was disclosed.
Social gaming operator PlayStudios spending $24.6 million to repurchase stock
Las Vegas-based social gaming provider PlayStudios is repurchasing almost 11.7 million shares of the company’s stock owned by Microsoft Corp. The stocks, traded on the Nasdaq, are being sold to the company for $2.11 per share, or $24.6 million.
In a statement, PlayStudios said the sale would reduce the number of shares currently on the market by almost 9 percent.
Eilers and Krejcik Gaming analyst Matt Kaufman said the stock purchase was an opportunity to use the company’s repurchase program. At the end of March, Summerlin-based PlayStudios had used just $4 million of the $50 million the company authorized for the repurchase program.
“PlayStudios management has frequently asserted their belief that the market was undervaluing their shares, so it would make sense that they would jump at the [offer],” Kaufman said.
CEO Andrew Pascal said the transaction enhances PlayStudio’s value because shares are being bought at a discount. PlayStudios closing price on the Nasdaq Monday was $2.18.
PlayStudios offers free-to-play games on mobile devices, including casino-centric titles such as MGM Slots, Konami Slots and myVegas. Customers can purchase additional online tokens at minimal cost and can win “real-world prizes,” such as trips and merchandise.
Macquarie Securities gaming analyst Andrew Lee wrote in a May research note that PlayStudios has almost $130 million in cash, which positions the company for share repurchases and merger and acquisition opportunities.
Appeals court rules Steve Wynn does not have to register as a foreign agent
The U.S. Court of Appeals for the D.C. Circuit upheld a ruling that former casino operator Steve Wynn can’t be ordered to register with the U.S. Department of Justice (DOJ) as a foreign agent of China.
The decision, announced on June 14 by a three-judge panel, upheld an October 2022 ruling by U.S. District Judge James Boasberg. He noted any relationship between Wynn and the Chinese government ended in 2017.
Attorney Bob Luskin, who led Wynn’s defense team, told The Hill the ruling was “a well-deserved finish to a long ordeal for our client.”
The DOJ sued Wynn in May 2022, alleging he lobbied former President Donald Trump and administration members on behalf of China when he was chairman of Wynn Resorts.
What I'm reading
🏀 The Vegas casino executive who hit the NBA jackpot — Robert O’Connell and Katherine Sayre, The Wall Street Journal
The Mavericks' ownership — Las Vegas Sands majority stockholder Miriam Adelson and son-in-law/Sands President Patrick Dumont — is focused on legalizing casinos in Texas. A legislative effort in 2025 appears slim, with analysts saying the earliest a casino bill could be approved is 2027.
🎰 New York lawmakers pass bill to speed up downstate casino process — Tom Nightingale, SBC Americas
The process to legalize three Las Vegas-style casinos in the New York City area has dragged on far too long.
🏗️ Will Bally’s planned $1.7 billion Chicago casino get built by 2026? The odds may be shrinking — Robert Channick, Chicago Tribune
Bally’s Chairman Soo Kim “remains confident the project will be done on time and on budget.”
News, notes and Quotes
Acres brings cashless gaming to a Northern California tribal casino
Las Vegas-based Acres Manufacturing installed its cashless gaming technology at the Rolling Hills Casino & Resort in Corning, California, marking its first agreement with a tribal casino. Acres has now placed the system in 11 states. The technology allows players to place wagers through a mobile wallet with a Bluetooth reader on slot machines and table games. The Paskenta Band of Nomlaki Indians owns Rolling Hills Casino.
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Analyst: Changes lacking for the 2024 Las Vegas Grand Prix
Deutsche Bank gaming analyst Carlo Santarelli doesn’t believe there will be any notable changes to the Formula One Las Vegas Grand Prix this year. Following discussions with Strip gaming executives, Santarelli wrote in a research note that gaming executives expressed frustration the 2023 race benefitted just a few Strip resorts. They were hopeful efforts would help properties not directly along the racetrack.
Santarelli wrote, however, that there weren’t any “notable changes to the 2024 [race] that would make the experience materially different than the 2023. We believe the potential for single-day ticket sales would help, and this is something that is being discussed.”