Daniel Lewis Supports Deal Between Pinnacle and GLPI but Considers Current Bid too Low

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Pinnacle Entertainment, Inc (NYSE:PNK) is a stock that has made the headlines in the last couple of days. The stock gained 23% in the last three days as a real estate investment trust Gaming and Leisure Properties Inc (NASDAQ:GLPI) offered to buy all real estate assets held by Pinnacle for $4.1 billion. The deal has a high chance to go through as recently Daniel LewisOrange Capital, which an investor of the company has issued a statement in support of a transaction between Pinnacle Entertainment, Inc (NYSE:PNK) and Gaming and Leisure Properties Inc (NASDAQ:GLPI) and most likely other shareholders of Pinnacle are also very excited about it. Orange Capital owns around 2.94 million shares of Pinnacle Entertainment, up from 2.58 million shares held at the end of 2014, the activist stake amassing nearly 5.0% of the company’s common stock.

Daniel Lewis - Orange Capital

However, Orange Capital is not satisfied with the value of the bid, considering that $4.1 billion significantly undervalues the assets. Pinnacle PropCo, a company that amasses Pinnacle Entertainment, Inc (NYSE:PNK)’s real estate assets is priced at an Enterprise Value/EBITDA multiple of 11.3x, the investor stated. On the other hand, Triple-Net REIT peers trade in a range between 14x and 18x forward EBITDA and every multiple “turn” of EBITDA equalas approximately $5.70 in value for Pinnacle Stockholders, the statement added.

Nevertheless, Orange Capital considers that GLPI’s offer has many merits in comparison with an independent Pinnacle PropCo, that would be a publicly traded REIT. Following a merger, the new company would have an increased scale, corporate cost synergies, tenant diversification, and certainty of timing and ability to close. Therefore, the investor considers that Pinnacle Entertainment, Inc (NYSE:PNK)’s board should continue to engage in negotiations with Gaming and Leisure Properties. In an earlier statement, Pinnacle said that GLPI approached them in January and expressed an interest in acquiring Pinnacle’s real estate assets, but the talks have failed because the board considered the offer not to be in the best interest of the shareholders in comparison with an existing plan of creating an independent, publicly-traded REIT.

Orange Capital has been pushing for a separation of Pinnacle Entertainment, Inc (NYSE:PNK)’s real estate assets since April, 2014 and in November the company decided to pursue the spin-off.

Another shareholder of Pinnacle that is looking forward to a potential deal with Gaming and Leisure Properties Inc (NASDAQ:GLPI) is Parag Vora’s HG Vora Capital Management. Vora owns 5.50 million shares of the company, valued at $122.38 million as of the end of 2014. Moreover, the fund is the largest shareholder among the funds that we track and its stake in Pinnacle represents the largest holding in the equity portfolio.

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