US – Gaming and Leisure offers Pinnacle a value-creating proposalBy Phil - 16 March 2015
Gaming and Leisure Properties has sent a letter to the Board of Directors of Pinnacle Entertainment, conveying its offer to acquire the real estate assets of Pinnacle for GLPI shares in a transaction with an enterprise value of $4.1bn, including assumption of debt.
GLPI’s offer is designed to enhance Pinnacle’s plan, which was announced in November 2014, to separate its operating business and real estate assets.
The real estate company resulting from the transaction GLPI is proposing would be the third-largest triple-net REIT by enterprise value, with the scale, diversity and financial strength to deliver increased value to both companies’ shareholders. Pinnacle’s operating business would become a separately traded public company (OpCo), as Pinnacle previously announced, and would be operated by its current management and Board of Directors.
Under the GLPI offer, following the spin-off of OpCo, Pinnacle’s real estate assets (PropCo) would be merged into GLPI and OpCo would enter into a mutually agreeable master lease agreement with GLPI. In the transaction, Pinnacle shareholders would receive one share of OpCo common stock and 0.5517 shares of GLPI common stock for each share of Pinnacle they own. Pro forma for the transaction, Pinnacle shareholders would own 100 per cent of OpCo and approximately 36m shares in GLPI, representing an approximate 20 per cent equity interest in the larger, post-transaction GLPI. The transaction is expected to provide Pinnacle shareholders with aggregate value of approximately $36 per share and to close prior to the end of 2015. This value represents a 30 per cent premium to Pinnacle’s closing stock price on March 6, 2015, a 47 per cent premium to Pinnacle’s volume weighted average price over the last 30 days, and a 59 per cent premium to Pinnacle’s price on the date (January 16, 2015) when GLPI made its initial offer to Pinnacle.
“We wholeheartedly agree with Pinnacle’s management and Board that the separation of Pinnacle’s real estate from its operating business is in shareholders’ best interests,” said Peter Carlino, Chairman and CEO of Gaming and Leisure Properties. “Our company’s history and results clearly support this approach. However, four months after announcing its separation plan, Pinnacle has still not provided any specificity regarding its plans, including when, and even whether, it will be able to close, how much equity dilution shareholders will suffer, the financial leverage of each company and the terms of the lease between OpCo and PropCo. Our proposal starts with Pinnacle’s fundamental decision to separate into two companies and enhances that approach with a better transaction offering certain and superior value to Pinnacle shareholders and doing so much sooner.”
“In contrast to the major risks, contingencies and delays which we believe are inherent in the Pinnacle standalone plan,” added Mr. Carlino, “GLPI’s straightforward proposal has a much faster path to completion and much less risk going forward. Our proposed transaction would create both immediate and longer-term value for the shareholders of both companies and enable Pinnacle shareholders to continue realizing the value of its gaming business without suffering the dilution, delay, and uncertainty associated with its current separation plan. Furthermore, our proposal is immediately accretive to GLPI’s AFFO per share and results in a conservative leverage profile for both pro forma GLPI and Pinnacle OpCo.”
“We have repeatedly tried to engage Pinnacle in a constructive manner regarding our value-creating proposal, and we are disappointed that they have refused to explore our proposal in any meaningful way. We delivered our first written acquisition proposal to the Board on January 16. That proposal went unanswered for many weeks during which time Pinnacle cancelled scheduled meetings, avoided substantive dialogue, and refused to provide us basic non-competitive information. Very recently, Pinnacle offered to engage, but only on the condition that we enter into a highly restrictive and inappropriate non-disclosure agreement.
Mr. Carlino concluded: “Last week, in a further effort to start a dialogue, we presented Pinnacle a revised, enhanced offer. Notwithstanding the attractiveness of this offer, Pinnacle has again refused to engage, which is why we are bringing our value-enhancing proposal directly to their shareholders. We think all shareholders deserve transparency in considering for themselves the relative merits of Pinnacle’s standalone separation versus our proposed transaction. We believe the stone-walling and roadblocks impeding our efforts to enhance Pinnacle’s separation should cease. We strongly urge Pinnacle’s Board and management to act in the best interests of its shareholders and engage without further delay. We and our financial and legal advisors stand ready to promptly enter into constructive discussions regarding our proposal.”