Report: Boyd Gaming Approaches PENN Entertainment With Acquisition Offer

Erik Gibbs

Boyd Gaming Corp is making a move on PENN Entertainment Inc., having presented an offer this week to purchase a fellow regional casino operator, according to sources familiar with the matter in communication with Reuters.

This potential acquisition would reshape the landscape of the U.S. gaming market, merging two major players into a formidable entity. However, it faces several seemingly impossible challenges.

PENN, which has a reported valuation of $9 billion, including debt, is the weightier of the two. Boyd, with a market value of approximately $7.8 billion, would need to secure substantial financing to complete such a transaction. This financial maneuver would likely involve a combination of debt financing and equity issuance to bridge the valuation gap between the two companies.

The backdrop to this potential acquisition includes recent pressure from some of PENN’s shareholders, notably the Donerail Group. These shareholders have been advocating for the company to divest its assets, citing what they perceive as mismanagement of the company, specifically with respect to the interactive unit its aspirations there.

Despite these pressures, PENN’s board has consistently opposed selling the company’s assets, maintaining that its strategy is sound. It has also stated that the company’s long-term value will be realized under current management.

Boyd has big dreams for the future

Boyd, headquartered in Las Vegas, operates 28 gaming properties across 10 states, according to its website. This makes it one of the largest and most diversified casino operators in the country.

In recent years, Boyd has been active in expanding its footprint through strategic acquisitions. Notably, in 2018, Boyd acquired four properties from Pinnacle Entertainment for $575 million, a move that significantly bolstered its presence in the Midwest and South.

In addition to its brick-and-mortar operations, Boyd has been expanding its digital footprint. The company partnered with FanDuel to operate sports betting and online gaming platforms, leveraging the growing trend of digital wagering. This diversification into online gaming positioned Boyd to capitalize on legal sports betting across the U.S., as a FanDuel Sportsbook has established itself as one half of a market-leading duopoly alongside DraftKings.

In April, Boyd’s Board of Directors gave the green light to buy back an additional $500 million worth of the company’s own stock. This brings its total remaining war chest for stock repurchases to roughly $721 million, as of the end of March 2024.

Looking at its financial performance, Boyd’s revenue for the first quarter of 2024 came in at $960.5 million, which is slightly lower than the $964 million it reported for the same period in 2023. Its net income also dipped year-over-year, with $136.5 million for Q1 2024 compared to $199.7 million in Q1 2023. This translates to earnings per share of $1.40 in 2024, down from $1.93 per share last year.

PENN sending mixed signals

PENN, also a major player in the gaming industry, says on its website that it operates 43 properties in 20 states, including casinos, racetracks, and off-track betting sites. The company, headquartered in Wyomissing, Pennsylvania, has a diverse portfolio that includes both regional gaming properties and digital offerings.

In 2020, PENN made headlines with its $163 million acquisition of a 36% stake in Barstool Sports, aiming to attract a younger demographic to its properties and online platforms. This strategic move was designed to bolster PENN’s position in the rapidly growing sports betting market, and PENN bought the rest of Barstool for $550 million last year.

However, it then sold the company back to founder Dave Portnoy less than eight months later for just $1. This has been one of the examples the Donerail Group has given to highlight the company’s mismanagement.

Additionally, PENN holds a 10-year, $1.5 billion licensing deal with ESPN for ESPN Bet. The sports betting platform targeted at sports fans is owned by Disney, which means Boyd would also have to impress Disney executives with its offer. Boyd has a 5% stake in FanDuel, which could also create some friction.

PENN has also been investing heavily in its Play Member Rewards (formerly mychoice) loyalty program, which integrates its online and offline gaming offerings. The program has been a key driver in increasing customer engagement and retention across its various properties.

PENN stock responds

Despite its robust operations, PENN has faced challenges in recent years. The company’s stock price has been volatile, reflecting broader uncertainties in the gaming industry and specific concerns about its management strategy.

When Donerail called for PENN to consider a sale, the company’s stock price responded favorably. It’s done it again, jumping significantly from where it was on June 20. PENN was trading at $18.56 Thursday afternoon and increased to $19.68 within half an hour. It finally settled at around $20.03 to close the day.

The potential acquisition of PENN by Boyd would be a monumental deal in the gaming industry, combining two companies with complementary strengths and significant market presence. However, the success of such a deal hinges on Boyd’s ability to secure the necessary financing, which would require leveraging the company, and the willingness of PENN’s board and shareholders to agree to the terms.

Neither Boyd nor PENN has commented publicly on the offer.