Mergers and Acquisitions: Private Equity Buys a Casino
By Ann Sosnowski
In this article
Private equity firm Fortress buys casino company Penn National Gaming.
While Penn has gained 31% in premium for this deal, Fortress' recent IPO is down 29%.
Private equity firm Blackstone doesn't look to do well in its upcoming IPO either.
Mergers and Acquisitions: Private Equity Buys a Casino
More M&A news today -- this time from the casino industry. Penn National Gaming Inc. (PENN:NASDAQ) is being purchased by Fortress Investment Group LLC (FIG:NYSE) in a joint partnership with Centerbridge Partners LP for $6.1 billion in cash. Penn's $2.8 billion in debt will now be taken over by the private equity firms.
Each share of Penn is now valued at $67 per share, a 31% premium over its trading price yesterday of $51.14 per share.
Not only is PENN trading up on the deal, but so is Isle of Capri Casinos Inc. (ISLE:NASDAQ), which just completed an acquisition on Monday of Casino Aztar in Missouri for $45 million. Capri has jumped more than 9% on the news, while the entire casino and resort industry is up 2.68%.
Fortress Investment Group LLC only debuted as an IPO stock in February 2007. The private equity company has led countless buyouts this year including: Florida East Coast Industries Inc., a railroad and real estate company; Interpool Inc., a transportation equipment leasing company; and Fremont Mortgages, a subprime lender.
Mergers and Acquisitions: Private Equity Firms Not So Popular
Fortress has traded below its debut IPO price for the last four months, currently valued at $23.41 per share. (FIG opened as an IPO at $35 per share. Overall, the private equity firm's stock has been oversold and can't break out into a new rising trend.
Part of the problem came from timing: Shortly after IPOing, Fortress released its 2006 earnings report, stating net income doubled from investment profits and asset-management fees.
Shareholders were happy, and ran Fortress back up to its near-IPO price. But Fortress couldn't keep the momentum going, as it announced first-quarter losses of $71.8 million on restructuring costs.
While we're hearing news every day of private equity buying out public companies, I'm not so sure that Fortress is a good investment even today, trading more than $10 below its IPO price.
With Blackstone Group, another private equity firm going public, one has to wonder if it won't see the same fate. Blackstone Group has made such private equity investments this year as with RGIS Inventory Specialists and Pharmaceutical Technologies and Services.
Mergers and Acquisitions: Play the Trend, Not the Players
Blackstone's IPO is set to launch the week of June 25 between $29 and $31 per share. Currently, two senators are attempting to derail the private equity firms' going public due to a tax advantage the company will receive by going public. The company's public offering could make it a $33 billion market-cap company straight out of the gate and give its management huge raises, but senators declare that the same companies, like Blackstone, that take huge companies out of the huge public market are charged too little in taxes to do so.
If you ask me, although shareholders weren't so ecstatic about Fortress' IPO this year, Blackstone's media attention is making its public potential even worse. I wouldn't advise buying into either private equity firm in the short term.
Over all, it's public companies buying other public companies that are creating real value for investors, and that's what's pushing the markets up. Stick with larger investments, like the Merger Fund (MERFX), to take advantage of the overall M&A trend.
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Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
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Related Resources
Mergers and Acquisitions: Fortress Buys Blackstone (via Forbes)
Mergers and Acquisitions: Private Equity Company Blackstone and Tax Debate (via Houston Chronicle)
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