Pinnacle and Ameristar Casinos Merger Not a Sure Bet
Jun 21st 2013 6:12PM
Updated Jun 21st 2013 6:14PM
Pinnacle Entertainment and Ameristar Casinos are very close to the final regulatory approvals needed to make their merger complete. Earlier this week, Pinnacle said it had tentatively agreed with the FTC to sell its Lumiere Place Casino and two adjacent hotel,s and Ameristar's Lake Charles, Louisiana project. The latest step was approval by the Mississippi Gaming Commission to let the acquisition go through.
But none of this means that Pinnacle is out of the woods in a highly competitive regional gaming market.
The hope for Pinnacle is that a larger base of casinos will lead to more customer loyalty and higher margins. But there's not a lot of evidence that a larger base of casinos will help the company, and it's fighting expanded gaming across the country.
Pinnacle will create a network rivaled only by Caesars Entertainment , and that company is struggling more than Pinnacle or Ameristar. None of the three companies are tearing up gaming either, as you can see in the chart below.
Combining two mediocre businesses into a larger mediocre business isn't a recipe for success, and I don't think a national infrastructure is really an advantage in gaming.
One eye on the future
The regional gaming market has struggled mightily, but Pinnacle probably has one eye on a huge potential market -- online gaming. Several states, including Delaware, New Jersey, and Nevada, have approved online gaming, and there may be state-by-state restrictions on who can enter the market. New Jersey is limiting the online gaming market to companies who already own casinos there and, after the acquisition, Pinnacle would have a presence in eight states. Only Caesars Entertainment can boast that kind of geographic diversity.
So, online gaming is one potential upside for Pinnacle, although it's taking a long time to legalize it nationwide.
Foolish bottom line
It looks like Pinnacle will be allowed to acquire Ameristar, but that doesn't make the regional gaming market any more attractive. The larger company will have similar struggles to the smaller company, and the massive losses at Caesars are proof that size doesn't matter in gaming.
The article Pinnacle and Ameristar Casinos Merger Not a Sure Bet originally appeared on Fool.com.Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.