Penn National loses takeover deal but gets funding

By Jessica Hall and Mark McSherry

PHILADELPHIA/NEW YORK (Reuters) - Penn National Gaming Inc (PENN.O: Quote, Profile, Research, Stock Buzz) said on Thursday its $6.1 billion takeover pact had been terminated, marking the latest leveraged buyout to crumble amid tight credit markets and a weak U.S. economy.

Fortress Investment Group (FIG.N: Quote, Profile, Research, Stock Buzz) and Centerbridge Partners had agreed to buy the casino and racetrack operator for $67 a share last year, just before the leveraged buyout bubble collapsed.

Penn National shares have been under pressure for months on investors' concerns that the deal price might be slashed or the buyout firms would fail to get funding at affordable rates.

"Since the deal was announced, credit went from being a big driver of these types of acquisitions to being a hurdle for a lot of them," said Majestic Research analyst Matthew Jacob.

"At the same time, the economy and the gaming industry as a whole, and specifically Penn's properties, started slumping."

Under the termination agreement, Penn National would get $1.475 billion, consisting of a $225 million break-up fee and what effectively would be a seven-year, interest-free $1.25 billion loan from Fortress, Centerbridge, Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) and Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz).

"It seems like this way it's a decent compromise for what could have been a poor situation. The company now has cash ... We now have one of the few gaming companies that's cash-flush," said Barbara Cappaert, gaming analyst at KDP Asset Management.

Penn National would repay the $1.25 billion debt, called "redeemable preferred equity," in 2015, using cash, its own common stock or a combination of the two. As of May 31, Penn National had $2.97 billion in outstanding debt.