Pinnacle’s $869 million deal to acquire Ameristar

The investment community had a favorable reaction to Pinnacle Entertainment, Inc.’s surprise announcement that it would acquire regional gaming rival Ameristar Casinos, Inc. for $869 million.

The merger will create a regional gaming giant with 17 properties in nine states.

Shares of Pinnacle rose more than 20 percent on the day of the announcement.

Fitch Ratings Service gaming analyst Michael Paladino said gave the deal a positive outlook, reflecting the company’s overall favorable view of the transaction for Pinnacle.

“This transaction is consistent with our overall sector outlook, in which we indicated that gaming operators have turned their focus to generating returns through growth and capital-allocation initiatives,” Paladino told investors. “These include leveraging transactions such as mainly debt-funded mergers and acquisitions or leveraged dividends/share buybacks supported by the prevailing low interest rate environment.”

Pinnacle Chief Executive Anthony Sanfilippo said the initial plans were to keep the merged company intact, even in markets with multiple properties.

Credit Suisse gaming analyst Joel Simkins said Pinnacle might have to rethink portions of that strategy before the deal closes sometime next year.

The merger returns to Pinnacle its former Sugarcane Bay site in Lake Charles, La., that Ameristar was developing as the $560 million Ameristar Lake Charles. The property, which has been under construction since this past summer, is located next to Pinnacle’s flagship L’Auberge Lake Charles resort.

Simkins speculated the company might revisit the current development plans and may scale back on portions of the hotel-casino location.

“Walking from this project may frustrate Louisiana regulators,” Simkins said. “While (the potential impact from proposed gaming in Texas) has been reduced, Pinnacle would still have well in excess of $1 billion invested on the (Louisiana-Texas) border.

Simkins also thought Pinnacle would have to sell one of the three casinos the company will own in the St. Louis market once the deal is complete. Pinnacle currently operates Lumiere Place in downtown St. Louis and the suburban River City Casino. Ameristar owns the Ameristar St. Charles, which is near St. Louis.

Sanfilippo said the three casinos serve different markets but that might not be enough to satisfy the Missouri Gaming Commission.

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