Penn National Buying M Resort Casino in Las Vegas
Penn National Gaming Inc., the operator of 23 casinos and racetracks, is acquiring the M Resort Spa Casino, after buying the Las Vegas property’s debt from a unit of Lloyds Banking Group Plc and MGM Resorts International.
Penn, based in Wyomissing, Pennsylvania, said today that it paid $230.5 million for about $700 million owed to HBOS Plc, now part of London-based Lloyds, and for a $160 million loan MGM Resorts made to the M Resort that MGM had the right to convert to half ownership.
The deal gives Penn a Las Vegas casino for a fraction of what the 390-room resort cost to build, according to Carlo Santarelli, an analyst at Wells Fargo Securities LLC. Buying the $1 billion resort allows the company to accommodate gamblers who frequent its facilities in states including Iowa and West Virginia when they travel to the biggest U.S. casino center.
“The deal makes strategic sense for Penn,” Santarelli, who rates the shares “outperform, said in a note to clients.
Penn National rose 81 cents, or 2.6 percent, to $31.67 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 16 percent this year.
Chief Executive Officer Peter Carlino has said he wanted to acquire a Las Vegas casino and that the company was looking at most U.S. gaming assets that come up for sale.
Penn outbid Leonard Green & Partners LP, who partnered with M Resort’s founding Marnell family, according to people with knowledge of the situation. The two were the final bidders for the resort after multiple auction rounds, said the people, who sought anonymity because the talks were private.
M Resort is located away from the heart of the Las Vegas Strip, about 10 miles (16 kilometers) south of the Mandalay Bay casino on Las Vegas Boulevard. It is surrounded by planned housing communities that haven’t been developed beyond sandy subdivisions since Nevada home prices plunged.
The property was designed, built and owned by CEO Anthony Marnell III and his father, construction magnate Tony Marnell II, for $1 billion, and opened amid 2009’s record gambling slump in Las Vegas. Their partner in the losing bid to retain the resort, Leonard Green & Partners, is a Los Angeles-based investment firm that manages about $9 billion of equity capital.
The Marnells’ Marnell Cos. construction company erected resorts including Rio, Bellagio and Caesars Palace.
M Resort includes 92,000 square feet of casino floor, seven restaurants, six bars, 60,000 square feet of conference space, a 23,000-square-foot spa and sprawling pool with an entertainment piazza for concerts, according to its website.
Lloyds is winding down or selling HBOS-owned assets at a loss since agreeing to acquire Britain’s largest mortgage lender in September 2008. The acquisition, encouraged by the U.K. government, left Lloyds with 20 billion pounds of losses last year alone. Through a 17 billion-pound ($27 billion) state bailout, the government holds a 41 percent stake in the bank.
In mid-2009, MGM Resorts International, the biggest casino operator on the Strip, wrote off a $160 million loan to the M Resort that it has the right to convert to half ownership.
MGM Resorts booked a $176 million charge, cutting the note and accumulated interest value to zero “based on our review of the operating results” and reduced cash-flow projections, according to a regulatory filing by the Las Vegas-based company.
Las Vegas is among the markets hit hardest by the housing price collapse and the economic effects of the 2008 financial crisis. Home prices in the area fell 57 percent through July from an August 2006 peak, according to the S&P/Case-Shiller Single Family Home Resale Home Price Index.
Unemployment in Nevada has outpaced the rest of the country since July 2007 after five straight years below the national rate. The state’s jobless rate was 14 percent in August, compared with 9.6 percent for all of the U.S.
Wachtell, Lipton, Rosen & Katz and Miller Buckfire & Co. LLC advised Penn National on the purchase. Blackstone Group LP and Katten Muchin Rosenman LLP advised the bank.
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