Pinnacle Entertainment announced that it will acquire its gaming rival, Ameristar Casinos, for the price of $869 million. The investment community reacted positively to this news, as the price of Pinnacle stock began to rise and the activity of stock trades also indicated a positive trend. Pinnacle share price enjoyed a 20% increase on the day of the announcement.
The merger of the two companies will create a gaming industry giant with 17 properties in 9 states.
Michael Paladino, gaming analyst for Fitch Ratings Service, said:
This transaction is consistent with our overall sector outlook, in which we indicated that gaming operators have turned their focus to generating returns through growth and capital-allocation initiatives. These include leveraging transactions such as mainly debt-funded mergers and acquisitions or leveraged dividends/share buybacks supported by the prevailing low interest rate environment.
Joel Simkins, gaming analyst for Credit Suisse, said:
The merger returns to Pinnacle its former Sugarcane Bay site in Lake Charles, La., that Ameristar was developing as the $560 million Ameristar Lake Charles. The property, which has been under construction since this past summer, is located next to Pinnacle’s flagship L’Auberge Lake Charles resort. Pinnacle might have to sell one of the three casinos the company will own in the St. Louis market once the deal is complete. Pinnacle currently operates Lumiere Place in downtown St. Louis and the suburban River City Casino. Ameristar owns the Ameristar St. Charles, which is near St. Louis.
Time will tell if the stock prices continue to rise in the future or if it is just a temporary trend inspired by this merger.