Analysis: ‘Deal or no deal;’ Icahn now controls the future of Caesars Entertainment Howard Stutz, CDC Gaming Reports · March 4, 2019 at 12:05 am Corporate raider Carl Icahn notched another victory in his storied investment career last week. Representatives of the long-time activist investor now control one-fourth of Caesars Entertainment’s 12-person board of directors, and Icahn has nearly total say over who will be the company’s next chief executive. If Caesars doesn’t name a new CEO to Icahn’s liking in 45 days, he gets a fourth seat on the board. Most importantly, Icahn will effectively decide Caesars Entertainment’s destiny; whether or not the company, which owns nearly 40 casinos in 13 states and the World Series of Poker, will be sold or merged with another gaming operator. “Mr. Icahn is one of the smartest investors in the industry and well-suited for structuring such a deal if it’s possible,” SunTrust gaming analyst Barry Jonas told investors in a research note on Friday. “However, we will look for more details on any potential deal to see if the motive is more about creating short-term or long-term shareholder value.” Icahn, 83, currently No. 31 on the Forbes 400 with a net worth of $17.7 billion, spent $566 million in the last few months to acquire 9.8 percent of Caesars, according to a Securities and Exchange Commission filing. Following weeks of headlines and speculation, Caesars said early Friday morning that it had avoided a proxy fight with Icahn and will allow him to roadmap the company’s future. “Our new colleagues bring diverse and relevant experience, and we look forward to them joining our board in our ongoing efforts to further enhance value for all shareholders,” Caesars Chairman James Hunt said in a statement. Joining the board are Icahn Enterprises CEO Keith Cozza, Icahn Enterprises board member James Nelson, and Icahn Capital fund manager Courtney Mather. Out are John Boushy, Matthew Ferko, and Christopher Williams, according to a subsequent SEC filing. Current CEO Mark Frissora’s days are numbered. He announced plans last year to leave the position in February, but later agreed to remain through April when the search for a new CEO stalled. Frissora, a former CEO with Hertz, joined Caesars in July 2015 and led the company through its 30-month bankruptcy reorganization that shed $16 billion in debt and created the real estate investment trust VICI Properties. Frissora led Caesars’ push into the recently created legal sports betting realm, signing marketing and partnership deals with the National Football League and sports broadcaster Turner Sports, which will include development of a studio branded by Bleacher Report inside the sportsbook at Caesars Palace in Las Vegas. Icahn wants someone with casino experience in the CEO’s office. “While we initially thought Caesars’ next CEO could come from outside the gaming industry, we suspect Mr. Icahn will lobby for a seasoned gaming executive,” Jonas said. “Ultimately, we believe the list of potential gaming candidates is fairly limited.” Jonas said the CEO selection will be telling; will it be someone who wants to grow the business over the long term, or someone more suited toward selling the company? For now, Icahn is saying all the right things. Cleary, he wants to drive Caesars’ stock price higher. Shares in Caesars, which closed at $8.97 on Friday, are undervalued, according to the investment community. “Caesars would be a great opportunity for certain investors who have already expressed interest, and I’m glad the board will explore these opportunities,” Icahn said in a statement released Friday. “Independent of strategic alternatives, I believe Caesars should also be focused on leadership, succession, disciplined capital allocation, improving operating performance and optimizing real estate and other assets.” The next steps will be closely watched. Icahn has had investment success in the gaming industry. He sold Tropicana Entertainment’s seven casinos for $1.8 billion last year to a partnership between Eldorado Resorts and Gaming and Leisure Properties. A year earlier, he sold the unfinished Fontainebleau project on the Las Vegas Strip – which he acquired out of bankruptcy for $150 million – to a New York developer for $600 million. Back in 2007, he sold the Stratosphere and several other casinos to Goldman Sachs’ Whitehall Street Real Estate Fund for $1.3 billion. Last fall, Texas billionaire Tillman Fertitta offered $13 a share for Caesars and would have combined the company with his Golden Nugget casino empire. Caesars acknowledged in November that the proposal had been rejected by the company’s board. It would have made Fertitta chairman and CEO of the combined business. It’s still to be determined if Fertitta will re-emerge. He reportedly acquired a less than 1 percent stake in Caesars last month. Jonas said there are many barriers to an outright sale of Caesars. “Mr. Icahn’s stated regional gaming focus would more likely imply a reverse merger,” Jonas said. “For now, we remain ‘Buy’ rated, given that we see value in the assets and the potential for shareholder value creation.” Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. 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