The Nevada Gaming Control Board will not consider the $17.3 billion merger between Eldorado Resorts and Caesars Entertainment at the panel’s regular monthly meeting next week.
But one analyst told investors Thursday he expects the deal to close in either May or June, meeting Eldorado CEO Tom Reeg’s stated “first half of the year” finish line.
Despite the shut down of casinos nationwide due to the COVID-19 coronavirus pandemic, Union Gaming Group analyst John DeCree said in a research note that “the strategic rationale for why the merger made sense … remains unchanged.”
He cited the combination of the Caesars Total Rewards customer loyalty program with Eldorado’s “formula” for operating efficiencies with driving the merger.
The deal, the largest ever in the casino industry, will create a company with a footprint of roughly 60 properties in 18 states. Eldorado is the acquiring company; its management will control the merged operation out of its corporate offices in Reno, Nevada.
“While no one could have predicted a pandemic shutting down the entire industry and economy, Eldorado did have the foresight to prepare a formidable balance sheet for the combined company that could endure an economic downturn,” DeCree told investors.
John DeCree, Union Gaming
Eldorado has financing commitments of more than $11.8 billion to fund the transaction. Before the pandemic, Eldorado had actually reduced the overall financing needed though casino sales and cash flow. The company expects to net $470 million from casino sales in the last half of 2020.
DeCree said Eldorado is currently spending $2.1 million a day during the shutdown, a burn rate that gives the company 10 months before it runs out of cash. Caesars has a much larger burn rate of $9.8 million a day but can still hang on for 10 months.
“While no one can be certain, we still believe conventional logic puts the deal on track to close,” DeCree said. “We think it is unlikely the transaction can move forward before casinos reopen,” a move now tentatively expected to occur around May 1.
The deal still needs approval from Nevada, Indiana and New Jersey, but the largest hold up is the sign-off by the Federal Trade Commission over antitrust matters.
Regulators in the three states aren’t looking to consider the merger until the FTC signs off.
In March, Eldorado agreed to sell its management stake in the Montbleu Resort in Lake Tahoe to Las Vegas-based Maverick Gaming for an undisclosed price. Two months earlier, Eldorado agreed to sell the Eldorado Shreveport in Louisiana to Maverick for $230 million. The transactions cleared up the remaining two anti-trust hurdles.
“The FTC issues are likely resolved, and we would expect final comments by the end of April, paving the way for final state regulatory approval,” DeCree said.
CNBC reported this week that Eldorado will have to pay a daily fee of $2.3 million to Caesars shareholders until the deal closes.
DeCree said “hefty termination fees” are the primary driving factor for Eldorado. If the deal falls apart, Eldorado will owe Caesars $837 million and an additional $125 million to real estate investment trust VICI, which is purchasing three Caesars properties under the Harrah’s brand in Atlantic City, Laughlin, Nevada and New Orleans for a combined $1.8 billion. VICI will lease the operations back to Eldorado for a total annual rent of $154 million once the deal closes.
“Assuming these fees are unavoidable (which we think they would be), it would make sense for Eldorado to push ahead with the transaction,” DeCree said.
Under the terms of the merger agreement, announced last June, 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. The combined business will be called Caesars, and its shares will be traded on the Nasdaq.
Shares of Eldorado Thursday closed at $10.67, down $1.02 or 8.73%. Caesars shares closed at $6.46, down 17 cents or 2.56%. Both companies are traded on the Nasdaq.
The stock prices of both companies have been hammered, along with the rest of the gaming sector, since the middle of February, when fears of the pandemic create market concerns.
DeCree said the spread between Eldorado and Caesars shares “indicate the market is seriously discounting the probability of closing.”
He placed a price target on Eldorado of $33 per share.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
