Penn National Gaming deal falls through; analyst sees Take-Two deal still alive

By Paul A. Harris

St. Louis, July 3 - The Penn National Gaming merger deal fell apart on Thursday.

Penn National Gaming, Inc. announced its $67 per share merger agreement with Fortress Investment Group LLC and Centerbridge Partners, LP is terminated.

In the breakup Penn National Gaming will receive $1.475 billion, which will consist of a $225 million cash termination fee and the purchase of $1.25 billion of Penn National Gaming's redeemable preferred equity due 2015, by affiliates of Fortress and Centerbridge, as well as affiliates of Wachovia and affiliates of Deutsche Bank.

A special situations equities analyst said that it was because of the $1.25 billion of equity from Fortress and Centerbridge that Penn National Gaming (Nasdaq: PENN) shares were up on Thursday, despite the merger's demise. The shares ended the session 3.71%, or $1.06 higher at $29.66.

The analyst commented that Penn National Gaming's management looks solid, and the stock doesn't look too bad.

Meanwhile shares of Fortress Investment Group (NYSE: FIG) fell 0.43% on Thursday, ending at $11.45, a nickel lower.

Higher bid for Take-Two unlikely, says Mitchell

News that SAC Capital lowered its active stake in Take-Two Interactive Software Inc. to 4% from 5% does not necessarily mean that the $25.74 per share hostile takeover of Take-Two by Electronic Arts Inc. won't get done, according to Todd Mitchell of Kaufman Bros., an equities analyst who covers the Take-Two.

However the bid is unlikely to go higher, the analyst said, adding that he maintains the view that Electronic Arts will remain a disciplined bidder.

"You have to look at it from Electronic Arts' perspective," Mitchell asserted, adding that Electronic Arts has a great top line story but no earnings story.

"They can't do a deal that is dilutive because it would degrade their already weak earnings story and it would be an indictment of their top line story," the analyst said.

The analyst added that although the deal may not be falling apart, the arbitrage story - that Electronic Arts ultimately may raise the bid - does seem to be falling apart.

"The people driving the float are all speculators," he said.

"I don't think the deal is yet in jeopardy, regardless of the stock price.

"But there is a realization that it's not going to get done any higher than the offer."

Shares of Take-Two (Nasdaq: TTWO) fell 2.22% on Thursday, down $0.54 to close at $23.80.

Meanwhile shares of Electronic Arts (Nasdaq: ERTS) rose 0.83%, or $0.36 per share, to close at $43.98.

From elsewhere in the gaming sector shares of Activision, Inc. (Nasdaq: ATVI) gave up 2.15%, or $0.68 per share, to close at $30.90 on Thursday.

A pair of seats

Just before the close of the abbreviated pre-holiday Thursday session, a special situations equities analyst noted that a story on the Wall Street Journal's All Things Digital web site was reporting that ahead of its Aug. 1 shareholders meeting the management of Yahoo! Inc. is considering offering investor Carl Icahn two seats on Yahoo's board, whereas Icahn says he wants at least four.

Earlier in the day the Journal reported that Yahoo has resumed discussions with Time Warner Inc. regarding a Yahoo! acquisition of AOL.com, which Time Warner operates, in a deal that would leave Time Warner with a minority stake in the combined entity.

Shares of Yahoo! (Nasdaq: YHOO) saw gains of 2.25% on Thursday, to close at $21.35, up $0.47 on the day.

Time Warner (NYSE: TWX) shares were up 0.96%, or $0.14 per share, to close at $14.69.

Meanwhile shares of Microsoft Corp. (Nasdaq: MSFT) - which is reportedly seeking a partner for another bid to acquire Yahoo! - rose by 0.39%, or a dime per share, to close at $25.98.

Thursday's situations unfolded against a backdrop of mixed trading in the U.S. stock indexes ahead of the three-day Independence Day weekend.

The Dow Jones Industrial Average gained 0.65, or 73.03 points, to close at 11,288.54.

The S&P 500 eked out a gain of 0.11%, or 1.38 points, to close at 1,262.9.

Meanwhile the Nasdaq fell by 0.27% to close at 2,245.38, 6.08 points lower on the day.

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