This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Street Loves Penn-Argosy Deal

Updated from 1:13 p.m. EST

Shares of Penn National Gaming (PENN - Get Report) and Argosy Gaming (AGY) soared Thursday as investors bet on a big payoff from their merger.

Late Wednesday, the companies said Penn National plans to pay $47 a share in cash for Argosy, a 15% premium to Argosy's Wednesday closing price of $40.75. The transaction, valued at about $2.2 billion and expected to close in the second half of next year, includes roughly $805 million of Argosy's long-term debt, but the companies said it would be "immediately" accretive to Penn National's earnings a share.

The resulting company will be the third-largest casino operator in the U.S.

In reaction, Argosy shares jumped $4.59, or 11.3%, to $45.34. Penn National shares gained even more, however, and were up $10.06, or 24.3%, at $51.50, as investors bet on a big boost to the company's EPS.

The announcement appeared to prompt speculation about which other smaller-capitalization gaming companies might make attractive acquisition targets, boosting shares of Isle of Capri Casinos (ISLE - Get Report) $4.92, or 24.0%, to $25.44.

Merrill Lynch analyst David Anders estimated that if the combined company can generate $25 million in cost savings, the purchase will add about 91 cents to Penn National's annual EPS. Before the announcement, Wall Street analysts' average EPS estimates were $2.38 in 2005, and $2.93 in 2006, according to Thomson First Call.

"We are maintaining our price target of $47 on Penn, however, in light of yesterday's announcement we believe this target may be conservative," Anders wrote in a research note. He added the shares could be worth between $50 and $53, assuming cost savings, a combined adjusted EPS of $3.31 and a price-to-earnings multiple of 15 to 16. (Merrill Lynch does and seeks to do business with companies covered in its research reports.)

Penn National's purchase of Argosy would create a gaming powerhouse with annual revenue of more than $2 billion, more than 20,000 slot machines and about 700,000 square feet of casino space. The deal would "essentially" double Penn National's revenue and EBITDA (earnings before interest, taxes, depreciation and amortization), said Peter Carlino, Penn National's chief executive.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
DB $34.47 0.00%
CZR $9.70 0.00%
GS $188.06 0.00%
ISLE $13.72 0.00%
MBG $27.34 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs