Several unnamed companies expressed an interest in acquiring all or part of Caesars Entertainment at the same time the casino giant was negotiating its $17.3 billion merger with Eldorado Resorts earlier this year.
However, according to the S-4 document the companies filed with the Securities and Exchange Commission this week, none of the offers matched Reno-based Eldorado’s cash and stock transaction that will create a gaming company which currently includes 60 resorts in 16 states.
The more than 400-page filing outlines details of the transaction, includes question and answer sections for shareholders of both companies who will need to approve the deal, spells out the current financial makeup of the two companies, and offers projections for the merged businesses.
According to the filing, Eldorado’s $500 million in targeted cost savings – described as synergies – were higher than any of the other bidders.
“The S-4 highlighted that Caesars’ current management agreed that there was a ‘clear path’ to $300 million of synergies (corporate marketing, operational and revenue synergies) and a ‘reasonable path’ to the remaining $200 million of targeted synergies,” Morgan Stanley gaming analyst Thomas Allen told investors in a research note.
Under the terms of the agreement, Eldorado will pay $8.40 per share in cash and 0.0899 shares of Eldorado stock for each Caesars share, or $12.75 per share in total. The combined business will be called Caesars, and its shares will be traded in the Nasdaq. The transaction, which also requires state regulatory approvals and a sign-off by the Federal Trade Commission, is expected to close next year.
Only one of the potential bidders for Caesars was named in the S-4 filing – Houston-based Golden Nugget Casinos, which is controlled by billionaire Tilman Fertitta through his privately held Landry’s. In November, Caesars said publicly its board rejected a reverse merger offer from Fertitta of $13 a share that would have given him control of the company.
According to the S-4 filing, five unnamed companies showed interest in acquiring Caesars, which was controlled by corporate raider Carl Icahn. The billionaire acquired a 28.5 percent ownership stake in the company through stock sales and swaps. Icahn had been pushing for either a merger or sale of Caesars since the beginning of the year.
Among the companies interested in Caesars was a non-U.S. gaming company that told Caesars representatives in March it was interested in acquiring one or more of the company’s casinos. Caesars received advice during the sales talks from international law firm Skadden and investment banker PJT Partners.
“Such representatives communicated that the non-U.S. gaming company did not have an interest in pursuing a broader transaction with Caesars at that time,” according to the S-4 filing.
Also in March, Caesars received an acquisition proposal from “a strategic operator,” which suggested a merger. “The proposal also contemplated multiple paths to reducing leverage after closing, including identifying additional synergies, selling certain of (the company’s) existing assets and raising third party equity of $1 billion to $2 billion.”
Two other gaming companies made offers for Caesars in April.
One proposal offered $12 per share for Caesars stock, but the company would only acquire “approximately 60%” of Caesars casinos, with the remaining casinos “being acquired by one or more third parties.” The merger would have created an estimated $200 million to $300 million of synergies.
A second company offered between $11.50 and $12 per share, which included cash and stock in the acquiring company and an estimated $250 million to $300 million of synergies.
“Similar to the proposal from (another company), (the transaction) required substantial third-party asset divestitures to finance the cash component of the purchase price,” according to the SEC filing.
In May, Skadden and PJT Partners told Caesars the two companies proposed a joint acquisition, which included $12 per share for Caesars stock. One company would provide $9.25 per share in cash and 0.133 shares of its company stock, “giving Caesars stockholders approximately 49% pro forma ownership in the combined company.”
The other company would pay $8.5 billion for 11 of the Caesars properties. The proposal also “contemplated sale leasebacks of select Caesars assets” and the sale of a “significant” asset owned by the unnamed company.
Allen told investors Eldorado had a “strong track record of realizing synergies” through its acquisitions over the last two years of Isle of Capri Casinos, Tropicana Entertainment and the Grand Victoria riverboat casino in Illinois.
“The $500 million Caesars synergy target represents 21% of the Caesars trailing (cash flow), which is in line with Eldorado’s targets on prior deals,” Allen wrote.
In addition to the competing offers for Caesars, the S-4 filing disclosed that Eldorado CEO Thomas Reeg, Chairman Gary Carano, President Anthony Carano and board member James Hawkins were subpoenaed by the SEC in May relating to an ongoing investigation over securities trading an unnamed publicly traded company.
Hawkins served a board member of the undisclosed company. Eldorado officials informed Caesars of the subpoenas.
“The representatives of Eldorado further informed representatives of Caesars that Eldorado understood that the executives had not been notified of any allegation of wrongdoing,” the SEC filing stated.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
