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Takeaway: PNK up 13% looks risky with deteriorating fundamentals

Decent price and NOLs make this a positive acquisition for PNK. Excluding the acquisition, we think PNK Q4 and 2013 estimates need to come down.

"The acquisition of Ameristar is a transformative transaction for Pinnacle that will provide us the scale and diversification to more effectively compete. The coupling of Pinnacle and Ameristar properties will create a terrific portfolio of quality assets to serve our combined guests"

- Anthony Sanfilippo, President and Chief Executive Officer of Pinnacle Entertainment 

"We are excited to have reached this agreement with Pinnacle as this transaction maximizes value for our shareholders and provides them with a significant and immediate premium.  We are focused on ensuring a smooth transition and look forward to working with the Pinnacle team."

- Gordon Kanofsky, Chief Executive Officer of Ameristar Casinos commented, 


  • There is minimal overlap between the 2 companies 
  • Transaction financing: 
    • New financing will mainly consist of the bank debt
    • They are considering options for a combined capital structure, but for now they are going to keep all the debt in place
    • The increased free cash flow will allow them to fund their growth pipeline and deleverage
  • Synergies of at least $40MM through scale efficiencies, margin enhancements through best practices, redundant public company expenses, and purchasing power/supply chain management 


  • More detail on the synergies
    • They have a large NOL, so this deal will allow them to accelerate the use the their NOL so the combined company should not be a payer of taxes in the  near and intermediate term
    • Some of the syngeries they can achieve is applying ASCA's best practices and overlaying them on their own properties
  • No need to issue equity as part of this transaction
  • There are termination fees payable to each party outlined in sections 5 & 7
  • Preliminary conversations with regulators have indicated that there should be no issues with overlapping properties (including Missouri & Lake Charles)
  • Will they look at a REIT conversion once this deal closes. At the moment, their focus is getting this transaction closed, integrating the companies, and deleveraging
  • They will transition to one loyalty plan eventually. For the time being, they will continue to have the joint venture marketing programs with WYNN and MGM, respectively. 
  • Having a property in Las Vegas is not their immediate focus. 
  • The merger agreement is posted so everyone can review. 
  • NOL: not expecting PNK to be a tax payer on a standalone basis - they only pay state taxes of $2-4MM per year. Through the combination, the state taxes will go up somewhat but they should not be a payer for federal taxes for a while
  • They do not intend to dispose of any of the 3 St Louis assets. They view the assets in 3 distinct markets but view having all 3 as a strategic benefit in that market
  • There will be a holding company above the 2 siloed structure 
  • ASCA also has some tax attributes where they have a large tax shield. 
  • ASCA is happy with MGM. They will figure out their partnerships at some point in 2013
  • Continuing with the sale of their land in AC. They are almost done with the first phase of the Vietnam project.
  • They are committed to deleveraging. Their comfort level is in the 3.5-5.0x leverage range.
  • Financing timing will be dependent on the regulatory approvals which should occur by mid-year. Expect the financing to get done at or shortly before the closing in the 1H2013.


  • PNK announced the acquisiton of ASCA for "$26.50 per share in cash, for a total enterprise value of $2.8 billion, including debt of $1.9 billion and cash on hand of $116 million as of September 30, 2012. This consideration represents a premium of 45% over the average closing price of Ameristar common stock for the 90 days ended December 20, 2012. The transaction has received the unanimous approval of both the Ameristar and Pinnacle Boards of Directors"
  • Pinnacle will benefit from increased operational and geographic diversity by more than doubling in size to 17 operating properties in 13 distinct geographies. 
  • The consideration represents an EBITDA multiple of 7.6x Ameristar's Adjusted EBITDA of $365 million for the TTM period, excluding synergies Pinnacle expects to achieve.
  • "We believe there is considerable opportunity to expand reach and generate synergies and efficiencies of scale from the increased size of the combined company, as well as an opportunity to drive property margin expansion by applying best practices garnered from both Pinnacle and Ameristar across the combined enterprise. As a result of the combination, we expect to achieve synergies and efficiencies of scale of at least $40 million annually, with potentially greater realization as we move forward through the integration process. Finally, we expect the acquisition of Ameristar to be accretive to our free cash flow and earnings per share following the closing, and for it to provide increased long-term strategic and financial flexibility. We are confident this transaction will drive long-term value for Pinnacle's stakeholders."
  • Pinnacle expects the transaction to close by the end of the third quarter of 2013. Pinnacle has obtained committed financing for the transaction and the transaction is not subject to a financing contingency.