Penn’s interest in Strip persists

Penn National Gaming made its intentions clear Wednesday -- the regional casino operator wants to acquire the bankrupt Fontainebleau project if it makes financial sense.

During Penn's third-quarter earnings conference call with analysts, company executives addressed several questions surrounding its well-documented interest in buying a Strip resort.

Penn has nearly $1.5 billion in cash available for an acquisition, the result of an aborted private equity buyout 15 months ago.

Penn National Chairman and Chief Executive Officer Peter Carlino reiterated comments he has made on previous quarterly conference calls; the company is exploring all options on the Strip.

"We believe in the future of Las Vegas," Carlino said. "The current economic crisis will not last forever. Our view is that Las Vegas will in time be fine. We are very concerned about the absorption of all the new units that will come to that city."

Penn emerged this month as the stalking horse bidder for the bankrupt Fontainebleau Las Vegas in U.S. Bankruptcy Court in Miami. The company is offering less than $300 million for the project, which has been stalled since April.

Analysts said the Fontainebleau, which had been valued at almost $3 billion, may cost $1.5 billion to $2 billion more to complete.

Carlino said Penn National hired legal, construction and financial consultants to analyze the north Strip project, which stopped building and laid off workers when lenders cut off $800 million in financing.

He said Penn National wants to bring in an equity partner that would help complete the 3,889-room project, which was about 70 percent finished when construction stopped. Carlino said Penn has received numerous inquiries.

"We are primarily interested in partnering with entities that can bring strategic value in addition to economic contributions," Carlino said. "We are currently in discussions with a partner that we believe meets this criteria, and have advanced a proposal to the debtors and several key creditor constituencies."

Carlino said the proposal has not been unanimously endorsed by creditors.

"It is uncertain whether our proposal will be accepted or whether we will be the successful bidder at an auction," Carlino said. "This is a very considered but carefully approached investment."

Penn said its third-quarter profit slid 86 percent from a year ago, when results benefited from the termination fee after its acquisition was called off.

In July 2008, Fortress Investment Group and Centerbridge Partners ended a $5.82 billion deal to acquire the company after its stock price fell. At the time, Penn National was promised $225 million in cash as a termination fee, plus $1.25 billion in what amounts to no-cost capital until 2015.

The casino operator reported net income of $21.4 million, or 20 cents per share, for the period ended Sept. 30, down from $147.5 million, or $1.69 per share, a year earlier. Analysts polled by Thomson Reuters predicted the company would earn 35 cents a share.

Revenue was $620.4 million, compared with $617.9 million in the same quarter last year.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.