The Terre Haute Casino is among nine regional gaming venues that Churchill Downs (NASDAQ: CHDN) is looking to sell, a move that could bring new ownership to the local establishment. Churchill Downs, operator of the renowned Kentucky racetrack, first disclosed its intention to divest these properties on July 29, coinciding with the release of its second-quarter financial results.
While Churchill Downs is set to provide a third-quarter update later this week, Truist Securities analyst Barry Jonas noted in a recent report that he does not anticipate any deals being announced until later this year. However, Jonas affirmed that there is "sizable interest" from prospective buyers for the assets.
According to Jonas, Tribal casino operators and private equity firms are showing interest in the properties. Among the companies covered by Truist Securities, Boyd Gaming (NYSE: BYD) and Monarch Casino & Resort (NASDAQ: MCRI) appear to be best positioned from a balance sheet perspective to pursue these acquisitions. The analyst did not specify which private equity firms or Tribal entities might be considering bids. Neither Boyd nor Monarch has publicly indicated any interest in acquiring any of Churchill Downs’ venues.
Despite the lack of public statements, the source material indicates that both Las Vegas-based Boyd and Reno-based Monarch would be logical bidders for some of these assets. This reasoning extends beyond their frequent association with casino industry mergers and acquisitions speculation. Both companies possess the financial capacity for targeted acquisitions, and Monarch, which currently operates only two casino hotels, is considered by Wall Street as a candidate to expand its portfolio.
Further reasons for their potential interest include minimal geographic overlap. There is little overlap between Boyd’s existing operations and the Churchill Downs venues on the market, and no geographic overlap whatsoever with Monarch. Another significant factor is that Churchill Downs owns the real estate for all nine regional casinos. This is considered material because it is widely believed that neither Boyd nor Monarch is interested in acquiring gaming venues without owning the underlying real estate.
In total, Churchill Downs aims to sell nine gaming venues. In addition to the Terre Haute Casino in Indiana, the list includes Calder Casino in Florida, Hard Rock Casino in Iowa, Oxford Casino in Maine, Ocean Downs in Maryland, Harlow’s and Riverwalk Casinos in Mississippi, del Lago in New York, and Presque Isle in Pennsylvania.
Churchill Downs has clarified its expectation to sell these venues individually or in small groups. This strategy suggests that multiple buyers could emerge, which might be an appealing approach for various interested parties, including Boyd and Monarch, as acquiring one or two venues is more economical than purchasing all nine. Analyst Jonas also added that a decent transaction multiple from these sales "should bode well for valuations across the peer group."
For now, these discussions remain speculative. However, considering Monarch’s past statements regarding operations in tax-friendly jurisdictions, it is possible the company may not be interested in all of Churchill Downs’ properties but might explore those located in states with more accommodating tax structures.