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Penn National agrees to acquire Pinnacle Entertainment for $2.8B

Penn National Gaming Inc. agreed to acquire Pinnacle Entertainment Inc. for $32.47 per share in a cash-and-stock deal valued at $2.8 billion.

In connection with the deal, Penn National will sell the gaming operations of four of Pinnacle Entertainment's casino resorts to Boyd Gaming Corp. for $575 million.

The per-share consideration to be paid to Pinnacle shareholders will comprise $20 in cash and 0.42 share of Penn National common stock and represents a 36% premium on Pinnacle's Oct. 4 closing stock price.

Boyd agreed to buy the gaming operations of Ameristar Kansas City and Ameristar St. Charles in Missouri, Belterra Casino Resort in Indiana and Belterra Park in Ohio.

The announcement confirms previous reports that Pinnacle and Penn National were considering a merger. The combined company that will operate 41 properties in 20 jurisdictions in North America. Following completion of the merger agreement, Penn National and Pinnacle shareholders will hold 78% and 22% of the merged entity, respectively.

The boards of directors of both companies have approved the merger, which is set to close in the second half of 2018, pending approval from shareholders of the two companies, as well as applicable gaming authorities, among other conditions.

Penn National estimates the acquisition will generate $100 million in annual run-rate cost synergies.

Gaming and Leisure Properties Inc., as Penn National's and Pinnacle's landlord, entered into an agreement to amend the terms of Pinnacle's master lease to permit the sale of the gaming operations of the four properties. Gaming and Leisure and Penn National plan to contract a roughly $315 million sale and leaseback for the Belterra Park and Plainridge Park Casino in Massachusetts. Post merger, the altered Pinnacle master lease will reflect an annual fixed rent payment of $25 million for Plainridge, with $13.9 million as incremental annual rent.

Boyd will sign a master lease agreement for the real estate of the gaming operations it is acquiring and use existing cash and proceeds from its existing credit facility to buy the assets.

The merger will be financed using a combination of existing cash, divestment proceeds and new debt financing. Bank of America Merrill Lynch and Goldman Sachs Bank USA have committed to fund the transaction, subject to customary conditions.

Goldman Sachs & Co. LLC is acting as lead financial adviser to Penn National, alongside BofA Merrill Lynch, while Wachtell Lipton Rosen & Katz is serving as Penn National's legal adviser.

J.P. Morgan is serving as financial adviser to Pinnacle, with Skadden Arps Slate Meagher & Flom LLP taking over as its legal adviser.

Boyd tapped Morrison & Foerster LLP to serve as legal adviser and appointed Moelis & Co. LLC as its financial adviser.