Pinnacle Entertainment Inc. (PNK) recently inked a definitive acquisition agreement with Ameristar Casinos Inc. (ASCA) to buy the latter through an all-cash deal worth $26.50 per share by third-quarter 2013.
The purchase consideration includes Ameristar Casinos' total enterprise value of $2.8 billion including debt of $1.9 billion and cash on hand of $116 million as of September 30, 2012. The offer price is at a 45% premium to Ameristar Casinos' average closing stock price for the 90 days ended December 20, 2012.
We consider the deal to be strategically positive for both the parties. For Ameristar, it holds immediate cash value for its shareholders. The deal will likely benefit this casino gaming company with the newest and most popular slot machines as its acquirer also operates in the same vertical.
On the other hand, the acquisition holds significant potential for Pinnacle Entertainment as well. Ameristar's eight properties are spread across some of the country's most compelling geographic locations like Missouri, Colorado, Mississippi, Indiana, Iowa and Nevada that makes it a lucrative acquisition target. Hence, the deal is in sync with Pinnacle Entertainment's strategy to grow through geographical diversification.
Ameristar's assets are expected to be seamlessly integrated with Pinnacle's current operational portfolio. The integration will more than double Pinnacle's size to 17 operational properties in 13 different geographies. Location-wise, the properties of both the companies are least likely to overlap.
Pinnacle is confident about deriving significant synergy off the deal. The acquirer anticipates that this unison will garner scale advantage of at least $40 million annually, with the amount scaling up as the integration process moves forward. The acquisition of Ameristar is expected to be accretive to Pinnacle's free cash flow and earnings per share subsequent to the closure of the deal.
Recently,, casino industry operators have been striving hard to gain market share through sector consolidation. While the step enhances operational efficiency, it alleviates competitive pressure as well. In May this year, another casino operator Boyd Gaming Corporation (BYD) also embarked on a high-budget acquisition of Peninsula Gaming (worth $1.45 billion). Currently, Ameristar has a Zacks #3 Rank short-term 'Hold' rating.