Gaming and Leisure Properties Inc (GLPI), which buys real estate leased to casino operators, went hostile with its offer to buy Pinnacle Entertainment Inc's real estate assets due to the casino operator's "failure to engage" in talks, according to an article in Reuters.
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GLPI said its offer of $4.1 billion, including debt, would speed up and remove risks from Pinnacle's plan to split its real estate and operating assets into two companies by 2016. GLPI's offer proposes that each existing Pinnacle share be traded for one share of the company housing Pinnacle's operating assets and 0.5517 share of the combined GLPI-Pinnacle real estate company.
That would give Pinnacle shareholders an aggregate value of about $36 per share, GLPI said. Pinnacle's market value was $1.65 billion based on its stock's close of $27.42 on Friday. Pinnacle's shares rose as much as 20 percent to an eight-year high of $33 on Monday, while GLPI's shares gained as much as 13 percent to $36.55.
GLPI, which houses the real estate assets spun off from Penn National Gaming Inc (PENN.O) in 2013, said it first approached Pinnacle on Jan. 16 and sent a "revised, enhanced" offer last week.
"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," GLPI Chief Executive Peter Carlino said.
Pinnacle said it told GLPI that its board would review the proposal "and respond promptly, but GLPI decided not to wait for the consideration of Pinnacle's board."
Orange Capital LLC, which holds about 4.3 percent stake in Pinnacle and had urged the company in April to spin off its casinos, said it was encouraged by GLPI's offer but the current proposal "dramatically undervalues" Pinnacle's assets.
"The GLPI offer for Pinnacle PropCo comes at a significant discount to the triple-net REIT peer group," Orange Capital said.
Valuations of companies in the U.S. triple-net lease market, in which properties are leased for long periods and tenants bear most of the operating costs, have surged in recent years as acquisitions picked up.
American Realty Capital Properties Inc is one of the biggest companies in the industry.
Morgan Stanley is GLPI's financial adviser and Wachtell, Lipton, Rosen & Katz is its legal adviser.