My, things change fast.
The topic of this column was going to be how the closing of Penn National’s acquisition of Pinnacle was the culmination of the riverboat casino boom that began a quarter century ago, with special kudos to Peter Carlino for hastening the consolidation through the creation of gaming’s first REIT, Gaming & Leisure Properties.
Then Tilman Fertitta offered to buy Caesars at $13 a share, or so Reuters and some other news outlets reported.
So, let’s go with the original plan as Fertitta’s reported offer could be a logical next evolution in what might be called the post-riverboat era.
As states legalized riverboat gambling in the 1990s, companies sprang into existence to compete for the licenses. Entertainer Merv Griffin led the creation of Players International. The Pratt brothers, Texas hoteliers, formed Hollywood Casinos. Hollywood Park racetrack bought the new Boomtown casino company. Craig Nielsen took his small Nevada casino company public as Ameristar. Lyle Berman created Grand Casinos following a successful venture into Indian casino management in Minnesota. Mississippi River barge magnate Bernie Goldstein founded Isle of Capri. There were others: Boyd, Trump, Argosy, Station, Aztar, Centaur, Horseshoe, Peninsula Gaming, and on.
Among the entrants was a family owned minor league Pennsylvania racetrack company named Penn National, which went public and jumped into the casino business.
Eventually, the inevitable happened: consolidation and the evolution of laws and regulations allowing for land-based casinos. Big fish swallowed small fish to become bigger fish. Notably for this tale, Harrah’s was the most voracious buyer of a small fry, in the process becoming today’s Caesars Entertainment, with more casinos than any other company.
Those names disappeared, one by one until, when Penn bought Pinnacle (which began as Hollywood Park and swallowed Ameristar) we were left with a handful of regional casino giants: Penn, Boyd, Eldorado, Caesars. And while there are still smaller operators around, like JACK Entertainment and Rush Street Gaming, the battle appeared mostly over and future mergers would be more like mopping up operations.
Interestingly, the latest acquisitions have been facilitated by Gaming & Leisure Properties, the REIT spun off by Penn and led by Penn Chairman Peter Carlino, who clearly deserved his recent induction into the Gaming Hall of Fame considering his role in transforming Penn National and in inventing the gaming REIT.
So now, before the dust has settled, Tilman Fertitta has come along with his five Golden Nugget casinos and more than 600 restaurants under various brands to propose a reverse merger with Caesars.
His price is $13 a share. Many think it will end up more like $15. The synergies appear to be true synergies, not just a euphemism for cost cutting, as casino and restaurant customers can be cross-marketed and Fertitta can fill Caesars’ casinos with his restaurants. And, of course, there are cost-cutting opportunities, too. Analyst Dan Politzer of JP Morgan preliminarily estimates them at $100 million to $200 million.
Perhaps the most interesting aspect of this merger, assuming it happens, is that it could open the next round of consolidations, not from within the gaming industry, but with other entertainment and hospitality industries.
In the early days of gaming’s proliferation, hotel companies like Ramada, Promus and Hilton dabbled in casinos. Perhaps that was premature. Maybe today, the time for cross-industry mergers is right.
