Fortress, Centerbridge $6bn Penn National takeover collapses

Penn National will receive $225m in cash and $1.25bn in preferred shares after the Fortress and Centerbridge-led deal to buy the casino and race-track company was terminated. Penn said a ‘re-negotiated, reduced purchase price was not a viable option.’

The $6.1 billion (€3.9 billion) takeover of US casino and racetrack operator Penn National Gaming by private equity firms Fortress Investment Group and Centerbridge Partners has collapsed. The two firms had agreed to buy the gaming company, which owns 19 casinos and racetracks across the US, last July for $67 a share.

Penn will receive $225 million in cash to terminate the takeover and $1.25 billion in preferred equity, due to be paid in 2015, it said in a statement.

The collapse of the credit markets, a slowing of the US economy and delays in acquiring the necessary regulatory approvals in the 15 states where Penn operates – approvals from gaming commissions in Indiana, Louisiana, Missouri and Maine were still needed – had resulted in the need to scrap the deal. A “re-negotiated, reduced purchase price was not a viable option,” the firm said. Fortress and Centerbridge were not available for comment.

Penn shares have been trading at almost half the $67 offered by Fortress and Centerbridge. Today, the company said terminating the deal would give shareholders the “most certain value” arguing that attempting to close the deal would lead to “significant and lengthy litigation.”

Penn plans to use the termination fee and preferred equity to repay some of its $2.97 billion of debt, and to acquire and develop new and existing facilities. In a statement, it said the capital injection would allow it to be “aggressively opportunistic at a time when [the] gaming industry valuations appear very attractive.” Penn’s board has already authorized the repurchase of up to $200 million of common stock over the next two years.

Chief executive officer of Penn Peter Carlino said the company was “disappointed” the deal had collapsed but that protracted litigation posed a significant risk to all concerned. “We may be in the gaming business, but we would never gamble the company's future and our shareholders' best interest in this or any other circumstance.”

Already this year New York-based private equity firm The Blackstone Group has seen its planned $6.6 billion purchase of Alliance Data Systems fail, while Bain Capital and Huawei Technologies have called off their planned acquisition of the US IT networking company 3Com as a result of US regulatory concerns about national security.

Publicly-traded Fortress manages $34.2 billion in assets, including private equity funds, hedge funds, and publicly traded real estate investment vehicles. Centerbridge Partners, 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, closed its last fund in 2006 on $3 billion.