Penn National says takeover deal terminated

By Jessica Hall and Mark McSherry

PHILADELPHIA/NEW YORK (Reuters) - Casino and racetrack operator Penn National Gaming Inc (PENN.O: Quote, Profile, Research) said on Thursday its $6.1 billion takeover pact has been terminated, marking the latest leveraged buyout to crumble amid the tight credit markets and weak U.S. economy.

Fortress Investment Group (FIG.N: Quote, Profile, Research) and Centerbridge Partners had agreed to buy the casino and racetrack operator last year for $67 a share.

Shares of Penn National have been under pressure for several months amid investors' concerns that the terms of the deal might be revised or that the buyout firms would fail to get funding for the deal at affordable rates.

"Since the deal was announced, credit went from being a big driver of these types of acquisitions to being a hurdle for a lot of them," said Majestic Research analyst Matthew Jacob.

"At the same time, the economy and the gaming industry as a whole and specifically Penn's properties, started slumping," Jacob said.

Under the termination agreement, Penn National would ==receive $1.475 billion, consisting of a break-up fee of $225 million and what effectively would be a seven-year, interest-free $1.25 billion loan from Fortress, Centerbridge, Wachovia Corp (WB.N: Quote, Profile, Research) and Deutsche Bank (DBKGn.DE: Quote, Profile, Research).

Penn National would repay the $1.25 billion debt, called "redeemable preferred equity," in 2015, using cash, its own common stock or a combination of the two.

"They are getting a nice infusion of cash out of this termination at least -- that's the silver lining here," Jacob said.