Boyd Gaming Rolls the Dice on Casino Deal

NEW YORK ( TheStreet) -- In rolling the dice on a $1.45 billion acquisition of Peninsula Gaming, heavily indebted Boyd Gaming ( BYD) is taking one of the more notable recent gambles in the risk-fueled casino industry.

The move may prove to be a well-timed push into southern and Midwestern economies after Boyd was unsuccessful in a larger play for Station Casino's -- as well as a diversification away from the hyper-competitive Las Vegas and Atlantic City gambling markets -- but the acquisition will add roughly $1 billion to already high debt levels and the prospect of shareholder dilution.

If it's to be the "transformative" deal for which Boyd has been searching, though, it's a gamble that hinges on the U.S. economy avoiding a slowdown. Initial analyst and shareholder reaction was mixed, and suggest the deal won't propel shares from the single digits and anywhere near pre-recession highs.

"Acquiring Peninsula Gaming is a transformative transaction that fits perfectly into our growth strategy by expanding our company's scale, diversifying our platform, strengthening our financial profile, and generating meaningful value for our shareholders," said Boyd Gaming CEO Keith Smith in a late Wednesday press release. Boyd will pay for the deal using $200 million of cash and by issuing $1.2 billion of debt.

Smith may be correct on the growth potential and diversification benefits, however, saddled with roughly $3.5 billion in debt, Boyd Gaming may not have the cash to pay off the $1.45 billion offer.

Such a dilemma is normally the case within the casino industry, which operates with large debt levels and is highly exposed to economic swings that may cause consumers to either ramp up or clamp down on leisure spending. Companies like Las Vegas Sands ( LVS), Wynn Resorts ( WYN) and Caesars Entertainment ( CZY) are all taking risks to diversify into non-Las Vegas and Atlantic City markets in a push to bump up profit margins.

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