PENN: THIS PUBLIC EQUITY WILL SHOW PRIVATE EQUITY HOW IT'S DONE

The publisher of Matthew Maccoby's The Productive Narcissist summarizes Maccoby's view that most innovative leaders are not consensus-building bureaucrats but are productive narcissists with an interrelated set of skills -- foresight, systems thinking, visioning, motivating, and partnering referred to as strategic intelligence. Productive narcissists are best suited to lead during times of rapid social and economic change.

Trivia question: What gaming company has generated the highest increase in shareholder value over each of the last 5 year (excluding WYNN which was not public for the full period), 10 year, and 15 year periods? I'll give you a clue. This company just terminated a merger that was priced 126% higher than Thursday's close, and still managed to create more relative value over the periods. The answer of course is Penn National led by an incredibly productive narcissist, Peter Carlino.

I remember when PENN was a racetrack company and the growth story was Off-Track Wagering in Pennsylvania. The 1997 purchase of the Charles Town Racetrack and the successful push for legalized slots in West Virginia put the company on the gaming map. Look at the stock chart to see what they've done since. Carlino and team generated 3500%, 1500%, and 180% over the 15, 10, and 5 yr periods, respectively.

Research Edge has been highly critical of private equity's performance, particularly in the gaming space. Eventually they may sell higher but they certainly didn't buy low . Check out the last few private equity deals in gaming:

Columbia Sussex bought Aztar - quite possibly the worst gaming acquisition ever. Most of the former Aztar is now in bankruptcy
Colony and the Fertittas took Station Casinos private - they top ticked this one. Great for shareholders.
Fortress tried to buy PENN - who did the valuation work here? The stock is trading at $29 vs deal price of $67. PENN's value is Peter Carlino. Tell me how Fortress was going to add value? What have they got now? They are poorer by approximately $1.5bn. Give PENN credit for recognizing the top.
TPG and Apollo bought HET - Actually not a bad deal at the time. Decent multiple that only looks expensive now after the bottom fell out of casino stocks. The deal will probably will make money but over a significantly longer duration than originally anticipated.

The Emperor has no clothes. During this decade private equity has been considered the smart money. I'd rather put my money with the old smart money. PENN's wealth creation has been nothing short of astonishing. Here is a management team that has made value-creating move after-value creating move. Negotiating $1.5bn in zero interest liquidity was another brilliant deal.

PENN has been the premier deployer of capital in the entire space. Multiples are back at levels where Carlino can go to work. Unlike private equity, PENN has the skill, smarts, and liquidity to make it happen. Remember PENN was a seller at the top and now look to be a buyer much closer to the bottom. Who else in private equity or industry for that matter, maintains this level of liquidity and can capitalize on these opportunities? Nobody.

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