Penn CEO Quashes Takeover Speculation on Earnings Call

Posted on: August 8, 2024, 03:41h. 

Last updated on: August 8, 2024, 03:45h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Penn Entertainment (NASDAQ: PENN) delivered second-quarter results earlier Thursday and recent speculation that the regional casino operator is a takeover target was briefly addressed on the company’s conference call with analysts.

Penn Entertainment
Penn Entertainment CEO Jay Snowden. He told an analyst “don’t believe everything you read” about takeover rumors. (Image: Bloomberg)

Regarding consolidation rumors of which their firms at the center, the typical response by executives at companies in any industry is that they don’t comment on speculation. In response to a question from JPMorgan analyst Joseph Greff, that was the approach taken by Penn CEO Jay Snowden, but he added rumors aren’t always accurate.

What I will say is that as a company and as a board, we’re always and always have, always will evaluate opportunities to enhance value and we’ll continue to take actions that we believe are in the best interest of the Company and our shareholders,” Snowden said. “And, I would say, don’t believe everything you read.”

Takeover chatter pertaining to Penn started in late May when investor the Donerail Group sent a letter to the gaming company’s board of directors encouraging it to sell itself to increase shareholder value. Related speculation ramped up several weeks later amid reports that rival Boyd Gaming (NYSE: BYD) was considering a bid of $9 billion or more for Penn.

ESPN Bet Improvements Could Limit Penn Desire to Sell

In the weeks since the Penn takeover rumor emerged, analysts have widely speculated that Boyd is an unlikely buyer if the target’s interactive unit, including ESPN Bet, is part of the package and that a third party may need to get involved to buy the digital business.

There’s also been discussion of Penn being a reluctant or an unlikely seller because ESPN Bet isn’t a year old and the operator likely wants to see how the sports betting unit performs over the course an entire football season. Penn’s interactive unit posted a second-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $102.8 million, but that was far better than the company’s prior guidance of a loss of $135 million.

“Management cited improved risk & trading and parlay mix driving NGR growth (likely at high-flow through), with better than guided losses also benefiting from further sequential improvement in promo reinvestment,” noted Stifel analyst Steven Wieczynski in a note to clients.

ESPN Bet monthly active users surged 138% year-over-year with Penn management highlighting benefits from improved efficiencies, risk management, parlay offerings as drivers of improved structural hold.

Penn Casino Sales Face Complexities

Penn runs 43 gaming venues in 20 states, implying it has an extensive menu from which to select for potential asset sales, but Snowden acknowledged there are complexities associated with such transactions.

“With regard to your specific question on assets, just remember that our assets, land-based assets are all part of different leases, and so it’s not as simple and easy as you just sell off an asset,” the chief executive officer told Greff.

Gaming and Leisure Properties (NASDAQ: GLPI) owns the bulk of the land on which Penn casinos reside and would have to approve any sale of individual venues’ operating rights to another company because the buyer would enter into a new lease agreement with the landlord.