Penn National Gaming (PENN) 'Scores' with $2 Billion Deal to Acquire theScore (SCR), Seen as 'Highly Strategic'

August 5, 2021 9:44 AM EDT
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Price: $74.59 -1.95%

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    19 Buy, 11 Hold, 2 Sell

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Shares of Penn National Gaming (NASDAQ: PENN) are down 2% Thursday after the company reported results and announced a deal to acquire Canadian digital media company Score Media and Gaming (NASDAQ: SCR).

PENN will pay $2 billion in cash and stock to acquire the digital media company as it seeks to create a complete one-stop destination for digital sports.

“We are thrilled to be acquiring theScore, which is the number one sports app in Canada and the third most popular sports app in all of North America. theScore’s unique media platform and modern, state-of-the art technology is a powerful complement to the reach of Barstool Sports and its popular personalities and content,” said Jay Snowden, President and Chief Executive Officer of Penn National.

Under the terms of the deal, theScore shareholders will receive US$17.00 in cash, as well as 0.2398 shares of Penn National stock for each theScore share. Ultimately, Penn National and theScore shareholders will hold approximately 93% and 7%, respectively, of total shares.

“This deal brings together two companies that share a vision for how media and gaming intersect, and we could not be more excited to join the Penn National family. I’m proud of theScore team and all of our accomplishments, and believe the time is right to take the next step and align with a company in Penn National with the resources and scale to accelerate our business. We are excited to join forces with Penn to form the most powerful media and gaming company in North America,” John Levy, Chairman and Chief Executive Officer of theScore, commented.

PENN expects the acquisition to yield over $200 million in medium-term adjusted EBITDA and more than $500 million of incremental long-term adjusted EBITDA upside.

Needham & Company analyst Bernie McTernan said theScore acquisition is a “highly strategic” move from Penn given the platform’s growing importance in sports betting and sports media.

“The announced acquisition of SCR appears to be a highly strategic acquisition in our view, in our initial thoughts on the acquisition, three things we like from a strategic perspective (1) the SCR media app is the third largest sports app in North America and top in Canada with users spending 113 minutes per month in the app, which drives engagement with their sports book. SCR is benefiting from the convergence of sports betting and sports media, we believe this convergence will continue over time and be a tailwind. (2) Provides PENN with the path to control their own tech stack. (3) A strong position in Canada with the expected launch later this year,” the analyst said in a client note.

In addition to the acquisition, PENN reported Q2 sales of $1.54 billion and adjusted EBITDA of $470.1 million.

Stifel analyst Steven Wieczynski said the deal overshadowed the results. The analyst is positive on the transaction, saying the deal "checks the last strategic ‘box’ for PENN, bringing their technology stack in-house." Wieczynski reiterated a Buy rating and price target of $108.

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