Pinnacle Entertainment Inc. agreed to buy Ameristar Casinos Inc. for about $900 million, more than doubling to 17 casino resorts with its biggest acquisition.
The $26.50-a-share offer is 20 percent higher than Las Vegas-based Ameristar’s closing price yesterday. The deal was approved by both boards of directors, the companies said in a statement. Pinnacle shares jumped the most since November 2008. Pinnacle also will assume Ameristar’s $1.9 billion of debt.
Ameristar, with eight properties including one in Kansas City, Missouri, and a resort under construction in Lake Charles, Louisiana, will bolster Pinnacle’s presence in the Midwest and the Southeast. Industry gambling revenue in the two markets has risen 2.5 percent and declined 10 percent since 2008, respectively, according to Brian C. Miller, a Bloomberg Industries analyst.
“When you’re in a slow-growth market, one way to grow is through the acquisition of another company,” Miller said.
Pinnacle, also based in Las Vegas, jumped 21 percent to close at $16.20, the highest since May 2008, after advancing 31 percent this year through yesterday. Ameristar gained 20 percent to $26.50, adding to a 28 percent year-to-date gain as of yesterday.
“This is a perfect fit -- these are two companies that are like two peas in a pod,” Anthony Sanfilippo, Pinnacle’s chief executive officer, said on a conference call today. “It presents many opportunities that will help accelerate Pinnacle’s top-line growth, long-term profitability and free cash flow.”
St. Louis Market
Ameristar also has resorts in Council Bluffs, Iowa; Black Hawk, Colorado; Jackpot, Nevada; and in St. Charles, Missouri, near St. Louis, where Pinnacle has two properties.
Pinnacle is paying about 8 times Ameristar’s earnings before interest, taxes, depreciation and amortization, less than a median of 11 for similar deals compiled by Bloomberg.
The 30 percent premium over Ameristar’s 20-day trading average price is similar to the average of more than 100 acquisitions of hotel casino companies over the past 10 years, data compiled by Bloomberg shows.
Pinnacle explored conversion to a real estate investment trust before the deal, Pinnacle Chief Financial Officer Carlos Ruisanchez said on the call.
Pinnacle expects the Ameristar acquisition to be completed by the end of the third quarter of 2013. It said it has committed financing for the transaction from JPMorgan & Chase Co. and Goldman Sachs Group Inc.
The companies don’t anticipate any regulatory obstacles even in markets such as Missouri and Lake Charles where they will have multiple properties, officials said on an conference call.
Ameristar will be Pinnacle’s largest acquisition by far, according to data compiled by Bloomberg. The second-biggest was the 1998 purchase of Casino Magic for about $320 million, including about $240 million in assumed debt.
The offer represents an Ebitda multiple of 7.6 times for the trailing 12 months ended Sept. 30, excluding expected cost savings, the companies said. Together, they would have generated $2.4 billion in revenue and $649 million in Ebitda over that period, excluding the costs savings.
Goldman Sachs advised Pinnacle on the deal and Morrison & Foerster LLP provided legal counsel. Lazard Ltd. and Centerview Partners LLC advised Ameristar, and Gibson Dunn & Crutcher LLP provided legal counsel.
Pinnacle owns and operates seven casinos, in Louisiana, Missouri and Indiana, and a racetrack in Ohio. The company is redeveloping River Downs in Cincinnati into a gambling facility and holds a 26 percent stake in Asian Coast Development (Canada) Ltd., which is developing Vietnam’s first large-scale integrated resort on the Ho Tram Strip.
Ameristar abandoned efforts to sell itself in late 2010 and chose the following year to buy back about 45 percent of its stock -- most of the stake held by the estate of its late founder Craig H. Neilsen. The $2.1 billion transaction also included the refinancing of its debt.