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Penn Acquires M

Posted on October 12th, 2010

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A number of the big players in the casino industry have found the economy’s trying times to be the perfect opportunity for them to expand and acquire small properties that have been struggling for very affordable prices. One perfect example is Penn National Gaming Inc. The current manager of 23 casinos and race courses, is taking on the M Resort Spa Casino, after assuming the debt of the Las Vegas property from a subsidiary of Lloyds Banking Group Plc and MGM Resorts International. Penn, a major casino industry mover with its head office in Wyomissing, Pennsylvania, said that it paid off $230.5 million of about $700 million to HBOS Plc, now part of London-based Lloyds. The bargain gave Penn a Las Vegas casino for a huge discount, with Penn paying only a percentage of what the resort with 390 rooms originally cost to build, according to an analyst at Wells Fargo Securities LLC, Carlo Santarelli.

Acquiring the $1 billion resort allows Penn National to get hold of gamblers who patronize its facilities in other states including Iowa and West Virginia when they visit the biggest casino center in the US. Santarelli comments, “The deal makes strategic sense for Penn.” He stressed the point by rating the company’s shares “outperforming” in a note he forwarded to clients. The value of Penn National shares increased by 81 cents, or 2.6 percent, to $31.67 at 4 PM, New York time in dealings with the Nasdaq Stock Market. The company’s shares have advanced by 16 percent this year, quite rare for a gambling company that doesn’t have operations in thriving markets like Asia. The company’s Chief Executive Officer Peter Carlino has stated he longed to assume a Las Vegas facility and that the company was considering a number of U.S. gaming possibilities that have gone up for sale.

Penn emerged victorious amidst competition from Leonard Green & Partners LP, who coordinated with M Resort’s establishing family, the Marnells, according to insiders with substantial information about what happened. The two entities were the last bidders for the facility after numerous rounds of auction, said the sources who refused to be named because the negotiations were held in closed doors. M Resort is situated quite far from the hustle and bustle of the center of the Las Vegas Strip, lose to 10 miles south of the Mandalay Bay Casino on Las Vegas Boulevard. It is bordered by planned housing communities that have not yet been completed other than sandy subdivisions because home prices in Nevada have suffered huge decreases. From its peak in 2006, housing prices in the state have fallen by 57 percent. Meanwhile, unemployment in the state is higher than the rest of the country at 14 percent in August, compared with the national average of 9.6 percent.

The place was fashioned, constructed and owned by CEO Anthony Marnell III and his father, construction mogul Tony Marnell II, for $1 billion. It was launched amidst the record gambling slide in Las Vegas gambling. Their collaborator in the losing attempt to continue their hold of the resort, Leonard Green & Partners, is an investment firm based in Los Angeles that handles about $9 billion worth of equity capital. Among the other projects that the Marnells’ Marnell Cos. construction company has erected are resorts including Rio, Bellagio and Caesars Palace. According to its website, the M Resort has in it 92,000 square feet of casino gaming floor, seven restaurants, half a dozen bars, 60,000 square feet of conference location, a spa measuring 23,000 square feet and a sprawling pool with an amusement piazza for concerts and other entertainment events.

In the middle of 2009, the largest casino operator on the Strip, MGM Resorts International, wrote off a loan worth $160 million to the M Resort in exchange for gaining the right to be half owners of the facility. The gambling industry in Las Vegas has been one that has been hit hard by the recession. Unemployment rates in area are at an all-time high.