Last week, an announcement that Michael Hartmeier has been added to the board of Boyd Gaming spurred rumors that the Las Vegas-based company is interested in buying its troubled rival, Penn Entertainment.
Hartmeier was most recently the group head of lodging, gaming, and leisure investment banking for Barclays, and previously worked at Lehman Brothers and Credit Suisse First Boston. He also served as a board member for Full House Resorts, a regional rival to Boyd.
How this is connected to Penn Entertainment is a little convoluted but observers seemed to make the connection.
First, Penn has been under fire by some of its investors for a declining share price and questions about its online strategy. Late last month, Penn investor the Donerail Group penned a vicious letter to the board contending that Penn has wasted billions of dollars chasing online sports betting while neglecting its bread-and-butter, the land-based casinos.
“Moreover, the growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the company’s fledgling Interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and board of directors,” wrote Donerail Managing Partner Will Wyatt.
The letter said Penn should consider selling out. Wyatt pointed out that the company’s share price has dropped more than 80 percent from an all-time high of $142 established in March 2021 to only around $17 recently. The Boyd rumors jumped the stock a couple of dollars to around $19 last week.
“Given our understanding of the company’s assets, however, alongside an understanding of the industry participants’ current strategic appetite to grow inorganically, we do believe that a sale of the company’s assets, if undertaken, could generate meaningful and certain value creation for equity investors,” Wyatt said.
Enter Hartmeier. His experience with the evaluation of regional gaming companies along with M&A activities, plus a rather tenuous connection with Penn CFO Felicia Hendrix—they both worked similar times at Barclays and Lehman—helped fuel the fire.
But there are also issues. In the regional markets, Penn and Boyd often overlap, particularly in the South and Midwest. In online sports betting Boyd has an app in Nevada—Penn’s ESPN Bet does not serve that jurisdiction—and runs the Stardust online casino in iGaming states. The company acquired early mover Pala Interactive in 2022, spending $170 million. Boyd also owns a 5 percent stake in FanDuel, something they worked out early in the sports betting universe. Would Boyd really be interested in ESPN Bet? That’s still to be seen.
When considering how a purchase could occur, there are several options. Boyd could buy pieces of Penn it finds most desirable at a premium price. Or Boyd could buy the entire company, with Boyd having almost twice the market cap than Penn—$4.97 billion vs. $2.58 billion.
Boyd, however, has a reputation as a very conservative company when it comes to expansion. Its response to the opening of the successful Durango Casino Resort by Las Vegas rival Station Casinos, was a rather timid renovation of the nearby Suncoast casino in April.
The last major deal pulled off by Boyd was its acquisition of Coast Casinos, operated by Micheal Gaughan in 2004 for $1.3 billion. The deal did not include the South Coast casino, which was retained by Gaughan and renamed South Point. It is now one of the most successful casinos in Las Vegas.
