(Adds management comment from conference call, share movement and industry background)
By Arunima Banerjee
Dec 18 (Reuters) - Casino operator Penn National Gaming Inc said on Monday it would buy Pinnacle Entertainment Inc in a cash-and-stock deal valued at about $2.8 billion, cementing its position as the leading U.S. regional gaming operator.
The deal is the latest in a series of mergers and acquisitions in the U.S. gambling sector in recent years as companies look to expand their reach, diversify their businesses and take advantage of recent legalization of gaming in some states.
In a bid to assuage regulatory concerns around the deal, Pinnacle will sell four of its Ameristar properties to Boyd Gaming Corp for $575 million. At the same time, Boyd will sign a lease agreement with Gaming and Leisure Properties Inc, the landlord for Penn National and Pinnacle.
"This was a very complex four-party transaction and we took a look holistically at the deal and what we needed to handle regulatory (approval) at the state and federal level," Penn National Chief Executive Timothy Wilmott said.
After the deal, Penn National will operate a combined 41 properties with about 53,500 slots, 1,300 tables and 8,300 hotel rooms in the United States.
Under the deal, Pinnacle's shareholders will receive $32.47 per share, comprising $20.00 in cash and 0.42 shares of Penn National common stock.
The offer represents a premium of 36 percent for Pinnacle shareholders based on the closing price of the two stocks on Oct. 4, a day before the Wall Street Journal first reported that the companies were in merger talks.
Pinnacle's shares were trading at $31.03, below the offer price, while those of Penn National were down 3.6 percent at $31.00.
Penn National expects to benefit with respect to the potential changes in the tax laws, including getting access to additional ammunition for potential acquisitions, Chief Financial Officer William Fair said on a call with analysts.
Union Gaming Research analyst John DeCree said he expected M&A activity in the sector to continue through 2018, adding that casino operators would gain from low cost of capital and potential tax reforms next year.
The Pinnacle deal is expected to generate $100 million in annual run-rate cost savings within 2 years of closing.
After the deal, Penn National shareholders will own 78 percent of the combined company and Pinnacle shareholders the rest.
Goldman Sachs was the lead financial adviser and BofA Merrill Lynch was the financial adviser to Penn National. J.P. Morgan was advising Pinnacle. (Reporting by Arunima Banerjee and Aishwarya Venugopal in Bengaluru; Editing by Maju Samuel and Saumyadeb Chakrabarty)