Truist: Churchill Downs Regional Casinos Drawing Ample Interest, Maybe From Boyd, Monarch

Churchill Downs (NASDAQ: CHDN) is looking to sell nine regional casinos and a variety of prospective suitors could emerge as the process advances.

The operator of the iconic Kentucky racetrack revealed its intention to unload the nine gaming venues when it delivered second-quarter results on July 29. Ahead of the company’s third-quarter update on Wednesday, Oct. 28, Truist Securities analyst Barry Jonas said it’s likely Churchill Downs won’t announce a transaction until later this year, but the interest is there among potential buyers.

The analyst didn’t elaborate on which private equity firms or tribes could bid for Churchill properties. Neither Boyd nor Monarch have publicly expressed interest in any of the seller’s venues.

Boyd, Monarch Could Be Logical Bidders

While Las Vegas-based Boyd and Reno-based Monarch haven’t publicly declared plans to bid for any of the Churchill Downs regional casinos that are on the auction block, both operators would be logical bidders for some of those assets.

The reasons extend beyond the fact that both Boyd and Monarch are frequently attached to casino industry mergers and acquisitions speculation. Both have the financial firepower for bolt-on deals and in the case of Monarch, it currently owns just two casino hotels, which in the eyes of Wall Street, makes it a candidate to add to the size of its portfolio.

There are other reasons why either or both companies could kick the tires on Churchill assets. First, there’s little geographic overlap between Boyd and the seller’s venues that are on the market and no such overlap with Monarch.

Second, Churchill Downs owns the real estate on which all nine regional casinos reside. That’s material because it’s widely believed that neither Boyd nor Monarch are interested in acquiring gaming venues without owned real estate.

Churchill Downs Sale Process May Be Appealing

Churchill Downs wants to sell the following nine gaming venues: Calder Casino in Florida, Terre Haute Casino in Indiana, 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.

The seller has made clear it expects to unload those venues individually or in small groups, implying that multiple buyers could emerge. That could be attractive to various buyers, potentially including Boyd and Monarch, because buying one or two venues is obviously more economical than acquiring nine.

“A decent transaction multiple should bode well for valuations across the peer group,” adds Jonas.

For now, it’s just speculation, but given Monarch’s previous commentary around operating in tax-friendly jurisdictions, it’s possible the company won’t be interested in several of Churchill’s properties, but it may kick the tires on the ones located in tax-accommodative states.