Dan Weiss

Penn Gaming Acquisition Not a Gamble

I actually made a post yesterday to my subscribers over at Vestopia but the gist of it is that I remain positive on the shares. By my estimations there is roughly a 20% chance that no deal is done with even odds among the remaining 80% of a deal done at current prices or at a reduced price (most likely in the $58-61 range). PENN like other gambling operators is struggling with a consumer which has less disposable income but much like alcohol there is always a demand for their product. The cash flows at the firm remain very strong with excellent free cash flow generation and the company has recently begun operating a new PA facility along with potentially down the road a casino in NJ to help with revenue growth going forward.

Interestingly, just a few hours after the NYT article a spokesman for Wachovia came out and denied that they are attempting to change any terms or lower the price of the deal. Now whether they are being completely honest is another question but it does show that the deal can be done. I dont see any issues with the remaining regulatory hurdles (state approvals) so its really going to come down to the negotiations.

Long term if no deal happens I still like this stock as they will likely strongly benefit once the economic environment improves and move to more normalized growth rates.