On November 3, 2004 Argosy Gaming Company entered into a definitive merger agreement with Penn National Gaming, Inc whereby Penn will acquire all outstanding shares of Argosy, thereby creating what will be the third largest gaming company after Harrah’s Entertainment and MGM Mirage. This has been achieved with a purely regional estate – the company does not operate in either Las Vegas or Atlantic City. The transaction, valued at US$2.2 billion, is still subject to certain regulatory approvals but is expected to close this quarter.

At present the omens auger well for Penn in legislative rulings that have come from Pennsylvania, Illinois and Maine. The Argosy merger should almost double the size of the company and the legislative decisions around the country seem to be working in its favour. The state of Illinois has not only rolled back a tax hike but also reduced by $1 the admissions gaming tax. Penn operates the Hollywood Casino Aurora in Illinois, just 38 miles from Chicago. In Maine the company operates Hollywood Slots & Bangor Raceway where it recently acquired an Off Track Betting (OTB) facility allowing it to build the state’s first gaming venue. Although Hollywood Slots in Maine is expected to start with around 450 slot machines, the number could rise to 1,500.

The decision by Pennsylvania’s Supreme Court to rule against a law suit, seeking to overthrow the legalization of slot machines in the state, will mean that Penn can proceed with its planned gaming facility project for Penn National Race Course. At present Penn operates in eight US states and the Rama Casino in Ontario, Canada. The Argosy merger will bring operations in an additional three states into its stable, including Argosy’s flagship Lawrenceburg in Cincinnati, Indiana where slot machine numbers are increasing to 4,000 under a US$250 million expansion. Penn’s largest operation in Charlestown, West Virginia, produced nearly a third of the company’s revenues in the second quarter of this year.

Gaming accounts for 83% of present earnings for Penn and racing just 4%, the other 13% consisting of management fees (1%) and other sources. When the company becomes the third largest in the gaming industry, revenues are expected to rise to around $2.4 billion. Over the last five years the company has steadily become less dependent on it original horseracing business. Earnings for this year should show a 41% increase with a further 40% upwards move for 2006. (E-08.04.05)

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