Fortress, Centerbridge in $8.9bn gaming deal

The two private equity firms have agreed to buy publicly traded Penn National Gaming, which owns 18 facilities in 14 US states.

Penn National Gaming, a company that operates casinos and horse racing facilities, has entered into an agreement with Fortress Investment Group and Centerbridge Partners to be acquired for approximately $8.9 billion (€6.7 billion).

Penn National went public in 1994. It currently owns facilities in 14 states and had revenues over $2 billion in 2006. It is expected that its chief executive officer, Peter Carlino, its chief financial officer, William Clifford, and its executive vice president, Leonard DeAngelo, will remain with the company.

Publicly traded Fortress Investment Group, based in New York, currently manages $36 billion in assets, including private equity funds, hedge funds, and publicly traded alternative investment vehicles. It manages $19.9 billion through its private equity funds. In its most recent deal, Fortress agreed to take global transport company Interpool private for $2.4 billion, including assumed debt.

The company’s share price fell 7 percent on Friday amid concerns that legislation proposed by the Senate Finance Committee yesterday, which would require publicly traded partnerships like Fortress to pay full income taxes, would hurt the firm.

Centerbridge Partners was founded by Mark Gallogly, the former head of The Blackstone Group’s private equity program, and Jeffrey Aronson, a distressed securities expert from hedge fund Angelo Gordon. Centerbridge’s debut fund closed on $3 billion in September of last year. The fund invests in both traditional private equity situations and distressed debt plays, a strategy designed to help the firm weather market cycles.

The firm made a bid for transportation and logistics company EGL earlier this year, but lost out to Apollo Management. The firm also went after Chrysler, but was outbid by Cerberus. If completed, this will be the young firm’s first deal.

The two private equity firms are part of a recent trend of investments in the gambling sector. Last December, Harrah’s Entertainment agreed to be acquired by Texas Pacific Group and Apollo Management for $17 billion. Last August, Los Angeles-based Oaktree Capital Managements acquired a 33 percent ownership interest in Cannery Casino Resorts for an undisclosed sum. Despite the sector’s reputation for uncertainty and the difficulty of obtaining licensing, many private equity firms are looking to casinos to realize returns on both property value and operations improvements.

Bloomberg estimates that there have been more than $26 billion in proposed gaming deals in 2006, more than the previous five years combined.

Under the agreement, Penn National shareholders will receive $67.00 in cash for each of the 85.5 million outstanding shares, a 31 percent premium over the 14 June closing price. Fortress and Centerbridge will also repay Penn National’s roughly $2.8 billion in outstanding debt.

The deal has no financing condition. Also, if the acquisition is not completed by June 15, 2008, the per-share purchase price will increase by $0.0149 per day.