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Penn National Agrees to Be Acquired for $6.1 Billion

U.S. hedge and private equity firm Fortress Investment Group and other investors agreed to pay $6.1 billion for Penn National Gaming in the latest sign of deal-making enthusiasm in the casino industry.

The investment group bid $67 a share for Penn National, which operates 18 casinos and horse racing tracks, a 31 percent premium over its Thursday closing price. The deal also includes $2.8 billion in assumed debt.

The buyout comes amid a flurry of casino deals. The world's largest casino operator, Harrah's Entertainment , is in the process of being acquired by private equity firms for $17 billion, while smaller local operator Station Casinos is in midst of a $5.4 billion management-led buyout.

"The bottom line that is private equity continues to like the characteristics of casinos and puts a higher value on them then the public markets," said Calyon Securities analyst Smedes Rose. "Between lodging and gaming companies, we will probably see more deals."

The offer values Penn National at nearly 35 times projected 2007 earnings per share, according to Reuters Knowledge. Casino operators Boyd Gaming and Ameristar Casinos trade at multiples around 25 times projected earnings.

"At this multiple I don't expect to see another buyer," said Jefferies & Co. analyst Larry Klatzkin. "I think they tried to put in a price that won't get topped. But in these days with private equity one can never be certain."

The deal is Fortress' largest since its initial public offering in February, which made it the United States' first publicly traded hedge fund group. Fortress shares were down more than 6 percent at $23.48 in midday trade.

Another buyout firm, Centerbridge Partners is investing alongside Fortress on the deal.

Penn National's management team, including Chief Executive Peter Carlino and Chief Financial Officer William Clifford, is expected to remain with the company.

The deal is expected to be completed in 12 months to 16 months. If it is not consummated by June 15, 2008, the per-share purchase price will rise by 1.49 cents per day.

Penn National shares rose $11.03 to $62 in afternoon trade on Nasdaq.

Two U.S. senators introduced legislation on Thursday to tax investment firms such as Fortress like corporations, forcing them to pay a rate of up to 35 percent versus the 15 percent rate now paid by partners.

Fortress and private equity firm Blackstone Group LP, with its own IPO pending, could be exempt from the new code for 5 years.

Lazard advised Penn National and Deutsche Bank and Wachovia are serving as advisers and financial sources to Fortress and Centerbridge.

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