Street Loves Penn-Argosy Deal
Updated from 1:13 p.m. EST
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) $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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV