07/02/2008 11:00PM

Penn National abandons merger deal


Penn National Gaming Inc. and a company controlled by two private-equity funds have abandoned a proposed $6.1 billion merger, the companies announced on Thursday.

As part of the termination of the deal, Penn National will receive $225 million in cash as a termination fee from PNG Acquisition Company, which is controlled by Fortress Investment Group and Centerbridge Partners. In addition, Fortress and Centerbridge, along with their banking partners, will purchase $1.25 billion worth of Penn National's equity by 2015, the companies said.

Penn National and the private-equity groups announced the merger last June. Under the deal, Fortress and Centerbridge would have paid $67 a share for Penn National's stock. Just before the deal was announced, Penn National's shares were trading at approximately $50, but after a brief rise to $60, the stock price steadily gave ground beginning in February, and on Thursday was trading at $28 a share.

Fortress, Centerbridge, and their banking partners were seeking to renegotiate the deal to reflect the slide in the stock and the deterioration in credit conditions brought on by the sub-prime mortgage crisis, but Penn balked at a significant restructuring. Penn's shareholders approved the deal in December.

"Based on discussions between Penn National and PNG Acquisition Company, it became apparent to Penn National Gaming and its board of directors that the proposed merger transaction would not be completed without significant and lengthy litigation which is inherently unpredictable," Penn said in a statement. "Further, it also became apparent to the company and its board that a re-negotiated, reduced purchase price was not a viable option."

Among racetrack properties, Penn owns Penn National in Pennsylvania, Charles Town Races and Slots in West Virginia, and Zia Park in Hobbs, N.M. The company also owns casino properties in 15 states.