Operator News
US – Caesars and Eldorado merger talks heat up
By Phil - 10 June 2019
Caesars Entertainment and Eldorado Resorts could be closing in on a deal that would create the largest gaming operator in North America.
Pushed by billionaire Carl Ichan, who now owns over a quarter of Caesars, the two operators are deep in negotiation over a cash and stock deal with Reno-born Eldorado becoming the controlling force of the two entities. Caesars has already rejected a proposed deal from Eldorado of $10.50 per share.
Eldorado has been increasing its portfolio in recent years with a deal to buy Isle of Capri Resorts for $1.7bn in 2017, followed by a $1.85bn deal for the seven casinos owned by Tropicana Entertainment as well as the purchase of Grand Victoria Casino in Elgin, Illinois for $327.5m . It now operates 26 casinos in 12 states, making it the third largest regional based casino operator in North America.
Caesars owns almost 40 casinos in 13 states including nine resorts on or near the Las Vegas Strip, a market Enldorado has no presence in.
Deutsche Bank analyst Carlo Santarelli believes the chances of a deal between the two has increased. “It would be a net positive for Eldorado, Caesars and the gaming group more broadly, given the valuation implication and broader halo of (a) busy merger and acquisition environment,” he said. “Eldorado could seek to reduce its acquired Strip exposure, and financial leverage, by selling assets, into what we think is a healthy appetite for Las Vegas Strip properties. From an analytical perspective, we think the premium to Caesars holders could be limited on face value, as we assume an acquisition price of $10.50. We believe the equity component in Eldorado would make for a more than satisfying return for the Caesars stakeholder.”
We estimate, based on what we believe to be leverage thresholds and synergy targets, that ERI would likely offering something in the range of a ~55/45 cash/stock deal,” Mr. Santarelli added. “As such, and assuming our ERI pro forma target objective of $83, we believe the transaction, over time, could represent a greater than 40 per cent return for Caesars holders.”
JP Morgan analyst Daniel Politzer believes Eldorado could find $500m in saved synergies and would benefit from selling some of Caesars’ Las Vegas Strip casinos.
“Under this scenario, we could see the combined company having three to five Strip assets, vs. nine currently, that would span customer segments (luxury via Caesars Palace, one or two mid-tier properties, and maybe one or two economy properties),” Politzer said.
Caesars owns Las Vegas properties such as Caesars Palace, The Linq Hotel, The Cromwell, Bally’s, Paris Las Vegas, Harrah’s, Planet Hollywood Resort, Flamingo and the Rio.
SunTrust Robinson Humphrey Analyst Barry Jonas said of Eldorado, added: “I think they have a very capable management team that’s loved by the Street. They’re very effective and really able to sort of push the envelope. It challenges a lot of the normal conventions around marketing and promotions and I think if anyone’s up to the challenge, it’s Tom Reeg and Eldorado.”
