Boyd Gaming to Buy Peninsula Gaming for $1.45 Billion

Boyd Gaming Corp., the regional casino operator, agreed to buy Peninsula Gaming LLC for $1.45 billion, adding five properties in three states outside of its base in Nevada. The shares rose in extended trading.

The deal will be funded with $200 million in cash and about $1.2 billion in debt, Las Vegas-based Boyd said yesterday in a statement. Peninsula, which is closely held, loaned Boyd $144 million in a note that is part of the purchase price.

The acquisition gives Boyd a presence in growing markets in Kansas and Iowa, Chief Executive Officer Keith Smith said in a telephone interview. After the deal, which Boyd expects will be completed by the end of the year, 25 percent of cash flow will come from Nevada, down from 35 percent before, Smith said.

“We’ve always had a focus on geographic diversity,” Smith said. “This particular transaction allowed us to enter markets we are not in. They’re very strong markets so it made sense for us.”

The transaction will immediately add to earnings and is expected to boost cash flow by more than $70 million to about $185 million, allowing for accelerated debt reduction, Boyd executives said on a conference call with analysts and reporters yesterday.

The purchase price represents a multiple of seven times trailing 12-month earnings before interest, taxes, depreciation and amortization for Peninsula’s properties, the company said.

‘Slight Positive’

Boyd gained 3.7 percent to $7.24 at the close in New York trading, the biggest gain in a month. The stock has lost 2.9 percent this year.

The acquisition is a “slight positive” for Boyd because it adds to earnings and reduces dependency on low-growth local Las Vegas casinos and the competitive Atlantic City market, said analysts led by Joseph Greff at JPMorgan Chase & Co.

“We do not believe investors will view this as a reason to get more positive” on Boyd, said the New York-based analysts in a research note. There is a risk the company may issue equity to reduce the debt from the transaction, said the analysts, who rate the stock underweight or sell.

Boyd approached Dubuque, Iowa-based Peninsula and negotiations were completed yesterday morning, Smith said.

The properties comprise Kansas Star Casino near Wichita, Kansas; Diamond Jo Casino in Dubuque; Diamond Jo Worth in Northwood, Iowa; Evangeline Downs Racetrack & Casino in Opelousas, Louisiana; and Amelia Belle Casino in Amelia, Louisiana.

‘Quality Assets’

The recently opened Kansas Star, in particular, provides opportunity for increased cash flow, Smith said.

“This property is the jewel of the Peninsula portfolio and provides a great long-term growth opportunity for our company,” Smith said on the call. “These are extremely high quality assets in protected markets.”

In its first full quarter, Kansas Star generated $26.8 million in Ebitda. The casino, which opened in December, will add hotel rooms, slots and additional tables in phases starting with its permanent facility in January 2013, Smith said. Should Kansas Star’s Ebitda exceed $105 million in 2015, Boyd will be obliged to make an earn-out payment, the company said.

Before the deal, Boyd operated 16 casinos, including several near the Las Vegas Strip, in the downtown area and in nearby communities; the Borgata in Atlantic City, New Jersey; and locations in Illinois, Indiana, Louisiana and Mississippi.

Potential Transactions

Net debt in the financing was $1.1 billion, Smith said. The financial structure leaves Boyd, half-owner of the Borgata casino in Atlantic City, flexibility for other potential transactions, Smith said on the call.

Greenhill & Co. was Boyd’s financial adviser and Morrison & Foerster LLP provided legal advice. Bank of America Merrill Lynch, JPMorgan Chase & Co. and Deutsche Bank AG committed financing for the transaction.

In July 2010, Boyd abandoned a year-and-a-half long pursuit for assets of Las Vegas-based rival Station Casinos Inc., which fell into bankruptcy. In December 2009, the company offered $2.45 billion in cash and assumed debt for all of Station Casinos, which was rebuffed in favor of a court process that ended up with the founding Fertitta family retaining control.


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