My best guess is that, 10 years from now, MGM Mirage (NYSE: MGM ) , Ameristar Casinos (Nasdaq: ASCA ) , and regional casino operator Pinnacle Entertainment (NYSE: PNK ) will all be one company. But a couple of other names have popped up on the rumor radar in just the past couple of weeks as candidates to break up that possibility by acquiring Ameristar first: Penn National Gaming (Nasdaq: PENN ) and Australia’s Crown Limited.
A couple of weeks ago, Pennsylvania-based Penn National Gaming announced an agreement to let its intended buyers -- Fortress Investment Group (NYSE: FIG ) and Centerbridge Partners -- pull out of their $6.1 billion deal to acquire the casino operator. Instead, Penn will receive $1.475 billion in cash: $225 million as a termination fee, and the remaining $1.25 billion as a seven-year, zero-coupon preferred stock investment. As a result of the cash influx, Penn will have something fairly unique in this industry at this point in time: the flexibility to go out and buy stuff.
That “stuff” might include the now dirt cheap stock of a rival casino operator such as Ameristar. Ameristar has a market cap of about $680 million, or about one-third of its 52-week high. It would appear that Penn can afford to pay a premium to that.
And it makes sense that it would.
Ameristar would give Penn what the Horseshoe Gaming acquisition gave Harrah’s Entertainment a few years back -- a fairly substantial upgrade in quality to what is largely a group of second-tier casino operations. It would also give Penn an increasingly identifiable gaming brand, as well as expansion into new gaming markets, namely Council Bluffs and Vicksburg.
As it is, in many of the markets where Penn and Ameristar overlap, the two companies compete in only the vaguest sense of the word. While both companies operate in Chicagoland, for instance, they operate on opposite sides of the market. Ameristar East Chicago is located on the Indiana side, while Penn’s two properties are located on the Illinois side of the market.
In St. Louis, the two companies are competitors about as much as the Washington Nationals and Boston Red Sox are competitors. Not only are Ameristar St. Charles and Penn’s Alton Belle located on opposite sides of town (different leagues), but the two properties aren’t really comparable in any sort of way.
The only market in which you might legitimately classify Penn and Ameristar as competitors would be Kansas City; and whether Penn would have to ditch its property is another question for another day when we are beyond hypotheticals.
Another name being thrown around as a potential suitor is Crown Limited. If the name Crown sounds familiar to Motley Fool Global Gains subscribers, it is because Crown owns a large stake in newsletter-recommendation Melco Crown Entertainment (Nasdaq: MPEL ) , which owns the Crown Macau.
Last week, in response to speculation in the media, the company denied having even looked at Ameristar. Still, there may be some merit to the idea.
Crown, which operates two large casino properties in Australia, has been actively snapping up a rather loose collection of casinos. In recent history, the company purchased a 19.6% interest in Fontainebleau Resorts, which is building a $2.9 billion project on 24 acres on the Las Vegas Strip, and a 50% interest in Gateway Casinos, which operates nine casinos in western Canada. Last December, the company agreed to acquire Cannery Casino Resorts for $1.8 billion; Cannery operates three local casinos in Las Vegas, as well as a racino in Pennsylvania.
However, in a credit crunch casualty, Crown recently pulled the plug on a $5 billion Crown-branded project on the Strip, fueling the idea that the company may be looking for something else to fill the void. Ameristar fits the bill for much the same reason that Ameristar makes sense for MGM Mirage, and that is the cross-marketing synergy of a national network: Crown now has the Las Vegas Strip destination property that would enhance the value of Ameristar’s properties in the regional markets by giving Ameristar a place to ship its loyal patrons. Meanwhile, Ameristar’s control over its regional markets would give the Fontainebleau first dibs on Ameristar’s loyal patrons in those markets.
While I tend to favor MGM Mirage as the ultimate acquirer, I think Crown and Penn both represent legitimate possibilities as well.