Penn National Gaming (NASDAQ: PENN - option chain) shares are rising today after voters in Ohio approved ballot measures to allow casinos in four cities in the state. PENN lobbied heavily in favor of the measure and will build two of the casinos, in Toledo and Columbus, which are scheduled to open in 2012. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on PENN.

PENN opened this morning at $27.49. So far today the stock has hit a low of $27.49 and a high of $28.88. As of 11:40, PENN is trading at $28.32 up $2.12 (8.1%). The chart for PENN looks bearish and S&P does not currently have a STARS rating for PENN.

MAJOR PAPERS:

• Barnes & Noble Inc (NYSE: BKS) is considering a bid for rival bookseller Borders Group Inc (NYSE: BGP), the Wall Street Journal reported, a move which would allow Barnes & Noble to improve profits and reduce costs. Antitrust issues could prevent a deal.
• The Wall Street Journal also reported that Carl Icahn's effort to remove Yahoo! Inc's (NASDAQ: YHOO) board has picked up new supporters, including T. Boone Pickens, who acquired a 0.75% stake. Some Yahoo shareholders believe it is still too early to predict whether Icahn will be able to carry July 3's shareholder vote.
• A Financial Times investigation discovered that Moody's Corporation (NYSE: MCO) incorrectly awarded top ratings to billions of dollars to debt products due to an error in its computer models. Moody's said it is in the process of "conducting a thorough review" of the rating of the constant proportion debt obligations, which should have been up to four notches lower.

OTHER PAPERS:

• According to the people briefed on the matter, the New York Times reported that the buyout of Penn National Gaming Inc (NASDAQ: PENN) by Fortress Investment Group (FIG) and Centerbridge Parters may involve revised terms. The sources said the negotiations may "delay or even imperil" the deal.

Expect big moves in Mountaineer Gaming (NASDAQ: MNTG) and Penn National Gaming (Nasdaq: PENN) in the next few weeks, specifically August 11, when residents in West Virginia's largest county are expected to vote on a proposal to allow table games at a racetrack in West Virginia. The dilemma between social responsibility and economic progress is constantly present in many industries. Like usual for gambling expansion proposals, the dissenters on the idea are primarily religious groups.

While I understand the arguments that gambling is not a good thing as it seems pretty undeniable, in my mind, I have typically stood on the pro-expansion side of the fence when issues like this surface. While I have several reasons for this, I believe the most important factor to consider is that many people gamble illegally. This can include anything from underground cardrooms to online gambling, but it does happen. And, in my opinion, it makes more sense to be able to tax and police this gambling activity (via regulated casinos, etc.) than to let it flourish unregulated and not taxed.

How should investors play Mountaineer Gaming and Penn National Gaming? Well, both stocks have had huge run ups in recent months. Therefore, I believe that if the proposal is accepted, upside is probably minimal as the potential upside is "priced in." However, if the proposal is rejected look out below - both stocks will sell-off very sharply because traders who have purchased the stock in recent times to benefit from the bill will quickly move on.

Trump Entertainment Resorts Inc (NASDAQ: TRMP), Donald Trump's casino company, this morning said that following a three-month search, it would conclude its strategic review. Although it has held talks since March with groups of investors that included former Trump Taj Mahal manager Dennis Gomes and Boyd Gaming Corporation (NYSE: BYD), the company said the offers it has received "weren't likely to lead to a transaction."

It seems a little strange that Trump Entertainment couldn't find a buyer, particularly because the market for casinos and their assets is hot. Recent examples of casino sector activity include the in-process $17B acquisition of Harrah's Entertainment Inc (NYSE: HET) and the announced $6.1B acquisition of casino and racetrack operator Penn National Gaming Inc (NASDAQ: PENN) by Fortress Investment Group LLC (NYSE: FIG), a U.S. hedge fund and private-equity firm.

What gives? Why hasn't Trump found a buyer? Sources have speculated that its casinos, located in Atlantic City, NJ, have been struggling in comparisons to Las Vegas "entertainment destinations," a partial smoking ban and competition from new gaming venues in Pennsylvania and New York. Additionally, the announcement that the company would end its efforts to sell comes weeks after CEO James Perry said he would retire and, effective yesterday, would be replaced by COO Mark Juliano.

Trump's Atlantic City casinos are still working on a $250M project to update its gaming floors and add new restaurants, although it hasn't seemed to help. The company posted losses in earnings per share loss and revenue when it reported Q1 results in May. The Trump Taj Mahal Casino Resort, its largest casino, with 786 rooms, is set to open next summer.

The casino company said that while it was ending the initiative to sell the company, it would continue to review other strategic alternatives, including a cost cutting effort. The company laid off Chief Information Officer Virginia McDowell and executive vice president of design and construction, Paul Keller. It doesn't plan to fill these positions.

Trump shares fell nearly 18% this morning.

Late last year, Penn National Gaming (NASDAQ: PENN) tried to buy Harrah's (NYSE: HET). But, in the end, private equity firms TPG and Apollo Management won the deal.

Ironically enough, now Penn has decided to go private. The deal is valued at about $5.73 billion and the buyers include Fortress Investment Group LLC (NYSE: FIG) and Centerbridge Partners LP. There will also be a repayment of $2.8 billion in existing debt.

While casinos generate lots of cash flows, it's still not easy to pull off a buyout deal. A big problem is dealing with the mind-numbingly complex gambling laws. In other words, it should take at least a year to close the Penn transaction.

Although, at 10 times EBITDA, the deal has a reasonable valuation.

On the news of the transaction, Penn's stock climbed 21.92% to $62.35. The buyout offer is $67.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

DOW JONES & COMPANY (NYSE: DJ)

Could it happen? Could News Corporation (NYSE: NWS) pull its offer? They could, and the fear is absolutely there. That's why the stock has fallen. For one, the Bancroft family, which controls the majority of Dow Jones' shares, hasn't formally accepted Rupert Murdoch's $5B, $60 a share offer. And no one else has come forward with a competing bid. But it does seem that both sides are moving together in the same direction. Okay, but somebody should make up their mind -- either way -- and stop fiddling around.

EXPEDIA INC (NASDAQ: EXPE), IAC/INTERACTIVECORP (NASDAQ: IACI)

Barry Diller is back at it. The chairman and CEO of IAC/InteractiveCorp, who is also chairman of the board and a senior advisor to Expedia, is working to take online travel firm Expedia private at $30 a share. Part of any deal will involve Expedia's TripAdvisor being spun off with about 400 jobs being lost in that shuffle.

PENN NATIONAL GAMING INC (NASDAQ: PENN)

After many, many laps around the track, this race is over, as race track and casino operator Penn agreed to be acquired today by Fortress Investment Group LLC (NYSE: FIG) and private equity firm Centerbridge Partners. All cash, baby, in a deal worth $8.9B that includes $2.8B of assumed debt. Everyone to the Winner's Circle.

MOST NOTEWORTHY: Airtran Holdings Inc (NYSE: AAI), UAL Corporation (NASDAQ: UAUA) and the REIT sector were today's noteworthy downgrades:

• Calyon downgraded shares of Airtran Holdings to Neutral from Add, citing concerns with AAI's yield trends.
• The firm also downgraded shares of UAL Corp to Add from Buy based on higher fuel prices and slightly weaker-than-expected RASM increases.
• Stifel downgraded the REIT Sector citing rising interest rates and mutual fund outflows, among other reasons. Companies that include Cedar Shopping Centers Inc (NYSE: CDR), Kimco Realty Corporation (NYSE: KIM), Kite Realty Group Trust (NYSE: KRG), Ramco-Gershenson Properties Trust (NYSE: RPT), Simon Property Group Inc (NYSE: SPG) and Tanger Factory Outlet Centers Inc (NYSE: SKT) were downgraded to Hold from Buy.

OTHER DOWNGRADES:

• Morgan Joseph downgraded shares of Penn National Gaming Inc (NASDAQ: PENN) to Hold from Buy on valuation.
• CBOT Holdings Inc (NYSE: BOT) was downgraded to Neutral from Outperform at Credit Suisse.
• JP Morgan downgraded shares of Netflix Inc (NASDAQ: NFLX) to Underweight from Neutral, as the firm believes the company's growth will be impacted by Blockbuster Inc's (NYSE: BBI) Total Access offer.

MOST NOTEWORTHY: Embarq Corp (EQ) and Boston Scientific Corp (BSX) were today's most notable downgrades:

• Goldman Sachs downgraded Embarq Corp (NYSE: EQ) to Sell from Neutral based on valuation and potential margin dilution.

• Boston Scientific Corp (NYSE: BSX) was downgraded to Peer Perform from Outperform at Bear Stearns based on regulatory and competitive challenges.

OTHER DOWNGRADES:

• Despite expectations of strong Q4 results and 2007 guidance, Needham downgraded Garmin Ltd (NASDAQ: GRMN) to Hold from Buy based on valuation, as they believe the multiple the market is willing to give the stock is likely to decline as PNDs continue to increase as a percentage of revenue.

• Roth Capital downgraded China BAK Battery Inc (NASDAQ: CBAK) to Hold from Buy.

• DA Davidson downgraded Weyerhaeuser Co (NYSE: WY) to Neutral from Buy.

• BMO Capital Markets downgraded Brady Corp (NYSE: BRC) to Market Perform from Outperform.

• Wachovia downgraded Boyd Gaming Corp (NYSE: BYD) to Market Perform from Outperform, expecting weakness in 2007 from the Las Vegas locals market and Atlantic City.

• Penn National Gaming Inc (NASDAQ: PENN) was downgraded to Hold from Buy at Deutsche Bank citing valuation.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

After languishing for about two months, it looks like the buyout for Harrah's (NYSE:HET) will get some traction. Tomorrow, the company's board will meet to discuss the offers.

The most promising bid (and perhaps the only one) is from Apollo Management and Texas Pacific Group. According to a report from the Wall Street Journal [subscription required], it looks like it will be $87 per share (which is up from the prior bid of $83.50).

The other group includes Penn National Gaming (NASDAQ:PENN), a casino operator that is much smaller than Harrah's, and D.E. Shaw, a major hedge fund. However, it looks like it will be difficult for them to arrange a credible financing package.

True, Harrah's has a great collection of brands and generates lots of cash. But the deal will mean an enormous debt load – making things quite risky. Harrah's has some valuable real estate holdings in Vegas, which could fetch premium prices. That could be used to pay down the debt. In fact, the Motley Fool has a great analysis on this point.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfiles.com.