Penn National Gaming completes acquisition of Pinnacle Entertainment

(PRESS RELEASE) -- Penn National Gaming, Inc. announced today that it completed its previously announced acquisition of Pinnacle Entertainment, Inc. as well as the related divestitures to Boyd Gaming Corporation and the real estate transactions with Gaming and Leisure Properties, Inc. (GLPI).

The transaction further enhances Penn National’s position as North America’s leading regional gaming operator, with 40 facilities in 18 jurisdictions: Colorado, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas and West Virginia. In aggregate, Penn National will now operate more than 49,000 gaming machines, 1,200 table games and nearly 9,000 hotel rooms, and employ more than 30,000 team members. The acquisition is expected to be accretive to Penn National’s free cash flow per share in the first year after closing with approximately $100 million in expected annual run-rate cost synergies and excluding one-time transaction costs.

Timothy J. Wilmott, Chief Executive Officer of Penn National, commented, “Our acquisition of Pinnacle Entertainment marks a significant milestone in Penn National’s 24-year history of growth as a public company, which has been predicated on our unwavering commitment to deliver exceptional entertainment to customers, support for the local communities where we operate and enhancement of value for our shareholders.

“As the industry leader, Penn National is poised for continued growth with a portfolio of premiere gaming facilities and more than five million active customers in its player rewards database. With the expected incremental free cash flow to be generated from our expanded base of operations, we believe we are well positioned to reduce leverage, evaluate additional accretive strategic growth investments and opportunistically return capital to shareholders.

“We are pleased to welcome Pinnacle’s team members to Penn National. Our operating teams consistently deliver best-in-market gaming, entertainment and dining experiences for our customers. We expect to realize approximately $100 million in cost-related synergies and expect to generate further revenue synergies through efforts such as monetizing our database; cross marketing our properties; sports wagering; and further leveraging our social gaming platform.”

Transaction summary
Penn National acquired all of the outstanding shares of Pinnacle through a public company merger for consideration of $20.00 in cash and 0.42 shares of Penn National common stock for each Pinnacle share. In connection with the transaction, Boyd Gaming purchased Pinnacle’s gaming operations at Ameristar Kansas City and Ameristar St. Charles in Missouri; Belterra Casino Resort in Indiana; and Belterra Park Gaming & Entertainment Center in Ohio, for approximately $563.5 million in cash, subject to certain customary closing adjustments.

In addition, GLPI, a landlord for Penn National and Pinnacle under respective master lease agreements, agreed to amend the terms of the Pinnacle master lease to permit the divestiture of the three Pinnacle properties included in the lease. In connection with the principal transaction, other notable agreements resulted in:

• The sale and leaseback of the real estate associated with Penn National’s Plainridge Park Casino in Massachusetts for $250 million, which was added to the Pinnacle master lease assumed by Penn National.
• The sale of the real estate associated with Pinnacle’s Belterra Park to an affiliate of Boyd for approximately $57.7 million through funding provided by GLPI to Boyd.
• An amendment to the terms of the Pinnacle master lease to reflect (i) additional annual fixed rent of $25 million in respect of the Plainridge sale leaseback described above and (ii) a $13.9 million increase in annual rent, which will approximate a rent coverage ratio of 1.8x prior to any anticipated synergies (after adjusting for the divestiture of the facilities acquired by Boyd and the Plainridge transaction).
• GLPI and Boyd entered into a master lease agreement for the three divested facilities that were previously part of the Pinnacle master lease, pursuant to which Boyd leases the divested real property from GLPI.

Concurrent with the closing of the transaction, Penn National entered into an incremental joinder to its existing credit agreement that provides for a $430.2 million senior secured term loan A facility and a $1.1 billion senior secured term loan B facility. The proceeds of these new credit facilities were used to pay the merger consideration, repay certain existing indebtedness of Penn and Pinnacle and to pay related fees and expenses.

Goldman, Sachs & Co. LLC acted as financial advisor with assistance from Merrill Lynch Pierce Fenner & Smith Incorporated and Wachtell, Lipton, Rosen & Katz acted as legal advisor to Penn National in connection with the transaction. J.P. Morgan acted as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal advisor to Pinnacle in connection with the transaction.