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Another Private-Equity Bet on Casinos

Shares of Penn National surged Friday as it became the the latest gaming outfit to get a buyout offer

Private Equity Bets on Casinos

By Ben Steverman

Private equity continues to place big bets on casino operators.

The latest buyout target is Penn National Gaming (PENN), which agreed Friday to be acquired by Centerbridge Partners LP and Fortress Investment Group LLC (FIG) in a $8.9 billion deal. The $67 per share bid includes $2.8 billion in debt.

"It shows that private capital continues to place a higher valuation on gaming cash flows than public investors," J.P. Morgan (JPM) analyst Harry Curtis said in research note.

The world's largest casino company, Harrah's Entertainment (HET), is being acquired by private equity firms for $17 billion. Management is leading a buyout of Station Casinos (STN). MGM Mirage (MGM) is considering an offer from Kirk Kerkorian's Tracinda Corp. to buy two of its Las Vegas properties.

The offer for Penn represents a 31% premium on Thursday's closing price. The stock moved up more than 21% on Friday to close at $62.12.

Curtis, of J.P. Morgan, says the offer is "a good starting point." "However, we expect the final price to be around 10 to 20% higher," he wrote Friday. (J.P. Morgan makes a market in Penn stock and provided banking services to the company.)

Gambling is heavily regulated by the government, so it can sometimes take a while for regulators to approve mergers. Curtis says Penn's deal should be done in around 12 months, sooner than Harrah's because Penn operates in fewer jurisdictions.

MGM Mirage stock was up 4% on Friday, while Station Casinos, Wynn Resorts Ltd. (WYNN) and Las Vegas Sands Corp. (LVS) all moved up slightly.

Steverman is a reporter for BusinessWeek's Investing channel.

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