Pinnacle’s $2.8 Billion Ameristar Bid Challenged by FTC
By Sara Forden - May 30, 2013 12:01 AM ET
Pinnacle Entertainment Inc. (PNK)’s $2.8 billion purchase of Ameristar Casinos Inc. (ASCA) was challenged by the U.S. Federal Trade Commission over claims the deal would lead to lower payouts for gamblers in Missouri and Louisiana.
The FTC said yesterday that it voted unanimously to issue an administrative complaint and seek a temporary restraining order and preliminary injunction from a federal judge to prevent the transaction from closing. Pinnacle and Ameristar are both Las Vegas-based companies that run casinos throughout the U.S.
“The transaction increases Pinnacle’s ability and incentive to raise prices post-acquisition to the detriment of customers in the form of less favorable hold rates, rake rates, table game rules and odds, and lower player reinvestments,” the FTC said in a statement on its website. Hold rates determine the theoretical loss at a slot machine. Rake rates are the charges for table games such as poker.
Pinnacle plunged 8.2 percent to $18.92 yesterday in New York trading, while Ameristar fell 1.9 percent to $25.91, recovering from an earlier 12 percent drop. Ameristar jumped 20 percent to $26.50 on Dec. 21, the day the merger was announced.
The FTC said that in St. Louis, Pinnacle’s acquisition of Ameristar would cut the number of casino service providers to three from four. In Lake Charles, Louisiana, an Ameristar casino going up adjacent to an existing Pinnacle one will be Pinnacle’s “closest and most significant” competitor in the market, the agency said.
The FTC also said there are significant barriers to entry for a new casino in the markets under review because of the limited number of licenses available in each state and state laws and regulations limiting the expansion of existing gambling facilities.
“We are disappointed by the FTC’s decision to issue an administrative complaint regarding our proposed acquisition of Ameristar Casinos,” Anthony Sanfilippo, chief executive officer of Pinnacle, said in a statement. He said the merger wouldn’t hurt competition in any of the markets where the combined company would operate.
“We are committed to completing the transaction as expeditiously as possible and in the time frame agreed upon with Ameristar,” said Sanfilippo, without saying whether the parties would be willing to enter into settlement negotiations with the FTC or make any divestitures.
The $2.8 billion merger, announced in December, was viewed favorably by analysts who saw it as a way for Pinnacle to increase its scale by purchasing a similarly sized company with high-quality assets at an attractive price.
Casino revenue in the $37 billion industry has yet to recover from the 2008 recession, according to data from the American Gaming Association, a trade group. Operators compete fiercely for new licenses, such as those being awarded in Massachusetts and Pennsylvania.
Savings from the merger were expected to total $40 million annually, according to Yinan Zhao, a Susquehanna Financial Group analyst in New York. Concentration in St. Louis was identified as potential snag by analysts including Zhao, who said in a December report that the merger could give the combined company a 58 percent share of that market.
Ameristar, which owns eight casinos in six states, dates back to two properties that moved to Jackpot, Nevada, in 1954, according to a company history. Ameristar still owns Cactus Petes Resort Casino and the Horseshu Hotel & Casino near the Idaho border.
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