What’s Pinnacle worth?; Trump dump

J.P. Morgan analyst Joseph Greff has been running the numbers on Gaming & Leisure Properties‘ hostile-takeover bid for Pinnacle Entertainment and concluded — no surprise — that the current offer won’t get the deal done, even if Pinnacle leadership will eventually have to bow to shareholder pressure and sell. (All of this is subject to the caveat that GLPI hasn’t performed its due diligence on Pinnacle yet.) I’ll admit that the thought of Pinnacle assets falling into the mitts of GLPI makes me a bit queasy, like selling a Rolls-Royce to someone who still drives a Yugo. That thought aside …

Greff doesn’t think the present, $35.77/share price will get the deal done but $42/share may be the magic number, even though it requires GLPI to put another 10 million shares on the table. GLPI can’t turn its proposal into a firm offer because it “is still seeking access to certain non-public information from PNK management, which largely pertains to the tax basis in PNK’s assets.” It’s already a pricey transaction: $4.1 billion for $365 million in real estate, or a dizzying 11X cash-flow multiple in an industry where 7X or 8X is the norm. Another attraction for Pinnacle management is that the proposed transaction is that it “allows PNK’s current management and board to keep their jobs, which PNK has to find at least somewhat appealing and potentially reduces a PNK social impediment to getting a potential transaction with GLPI done. GLPI apparently doesn’t expect [Penn National Gaming] to be involved (perhaps due to overlap issues) and likely wants the tenant diversification.”

As for GLPI, ” it would receive acquisition-related growth (a heretofore investor concern) and reduce its largely single tenant risk exposure (ditto) through creating and spinning out another OpCo.” Greff thinks the likelihood of rival bids, particularly by Boyd Gaming and MGM Resorts International, is low. He also dismisses scenarios wherein Pinnacle management accepts GLPI’s offer as is or trawls for other bidders. He thinks CEO Anthony Sanfilippo and his cohort will “dismiss the current offer as inadequate and signal that its board would be amenable to a higher offer.” He expects the deal to close by year’s end.

* Donald Trump has uttered another desperate cry for help. At least it means we will be rid of his TV sitcom, in which demi-celebrities humiliate themselves for the sake of Trump’s grudging approval.