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Why the Ameristar-Pinnacle Merger Is on the Rocks Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ameristar Casinos (UNKNOWN: ASCA.DL  ) and Pinnacle Entertainment (NASDAQ: PNK  ) fell as much as 11% today after the government brought into question the merger of the two companies.

So what: The U.S. Federal Trade Commission filed a complaint over the merger, saying it would lead to higher prices -- or lower payouts -- to gamblers in Missouri and Louisiana. The FTC thinks that Pinnacle would have incentive to change table game rules, the hold rate, and rake rates post-merger because it has the scale to not fear competition.  

Now what: It's difficult to say how this complaint will play out, but one possibility would be the sale of some casinos to a third party and a continuation of the merger. No matter what happens, I think the combined company faces a lot of challenges, because gaming has deteriorating returns around the country. More and more states are allowing slots and table games, which reduces return for existing casinos, and the trend doesn't seem to be slowing down any time soon.

Interested in more info on Pinnacle Entertainment? Add it to your watchlist by clicking here.

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Related Tickers

12/31/1969 7:00 PM
ASCA.DL $0.00 Down +0.00 +0.00%
Ameristar Casinos CAPS Rating: No stars
PNK $12.34 Up +0.10 +0.82%
Pinnacle Entertain… CAPS Rating: *