The combined Eldorado Resorts-Caesars Entertainment gaming industry behemoth announced Monday may not look the same when the $17.3 billion deal closes sometime in 2020.
Eldorado CEO Tom Reeg said Monday he expects the companies will sell a few of the nine Las Vegas Strip casinos involved in the merger. Also, casinos in some of the 16 states where the combined the company will operate will also be on the move to avoid federal anti-trust issues.
“We know there are assets we intended to prune,” Reeg told analysts on a 75-minute conference call a few hours after the much-anticipated cash and stock transaction was announced, creating the world’s largest casino company.
Eldorado CEO Thomas Reeg
Reno-based Eldorado – which has Nevada resorts in Reno, Lake Tahoe and Laughlin – has long-wanted to own a casino on the Las Vegas Strip. Reeg is just not sure if the company needs nine Strip properties, which include Caesars Palace, Bally’s Las Vegas, Paris Las Vegas, Harrah’s Las Vegas, Linq Hotel and Linq Promenade, Flamingo, Planet Hollywood, Cromwell, and the off-Strip Rio.
“We will do an analysis to see if we are better off keeping what we have on the Strip. Are we better having all that room inventory?” Reeg said. “As I sit here today, there is more Strip exposure than we need. I would expect we would be a seller of Strip assets, but that decision has not been made.”
Reeg told analyst to “expect some asset sales outside of closing” the deal from what is now a 60-property portfolio. He didn’t name any of the regional markets that could be on the auction block, referring analysts to map of the combined company’s operations.
Wall Street had a positive reaction to the news.
Map of combined Eldorado-Caesars properties.
“The deal presents a series of issues and complexities, but in the end is positive for all concerned, with the most significant risk of time to closing,” Jefferies gaming analyst David Katz told investors.
Added Stifel analyst Steven Wieczynski, “The deal everyone has been waiting for has finally reached the finish line. On the whole, we are constructive on the deal, as we believe it combines Caesars scale and geographic diversity with Eldorado’s operational expertise.”
Shares of both Caesars and Eldorado were active Monday on the Nasdaq. More than 212 million shares of Caesars changed hands – 11 times the average daily volume. Caesars closed at $11.44, up $1.45 or 14.51 percent. More than 19 million shares of Eldorado were traded – 27 times the average daily volume. Eldorado closed at $45.77, down $5.45 or 10.64 percent.
The transaction
Under 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. The combined business will be called Caesars and its shares will be traded on the Nasdaq. Reeg said the stock price was agreed upon on May 23. Reeg said he expects the combined company will achieve $500 million in cost savings within the first year after closing.
The company will be led by Reeg, who was Eldorado’s chief financial officer before taking over as CEO in January. Eldorado Chairman Gary Carano and other company leaders will oversee the merged operation, which will be headquartered in Reno where Eldorado is based. A “significant corporate presence” will also be retained in Caesars hometown of Las Vegas.
Carl Icahn
The agreement comes three months after Caesars had agreed to give Eldorado access to its books under pressure from billionaire investor Carl Icahn. The 83-year-old corporate raider acquired a 28.5 percent ownership in Caesars through stock sales and swaps and had been pushing for a merger or sale of the casino giant since the beginning of the year.
In a statement, Icahn said called the merger a “quintessential example of how an activist shareholder, working collaboratively with the Board, can greatly enhance value for all stockholders.” Icahn said the sale was a 51 percent premium over the Caesars stock price when he appointed three representatives to the company’s board in March.
“While I criticized the Caesars board when I took a major position several months ago, I would now like to do something that I rarely do, which is to praise a board of directors for acting responsibly and decisively in negotiating and approving this transformational transaction,” Icahn said.
VICI part of the deal
Caesars emerged from a two-and-a-half-year bankruptcy reorganization in 2017 that sliced some $12 billion in debt from the company’s books and created VICI Properties, a real estate investment trust that owns the land and buildings associated with 20 Caesars resorts. The operations are leased back to Caesars Entertainment.
As part of the transaction, VICI will acquire the real estate associated with Harrah’s Atlantic City, Harrah’s Laughlin and Harrah’s New Orleans from Caesars for $1.8 billion and lease the operations back to Eldorado.
VICI will also amend the existing leases into a new master lease and has the right of first refusal on two Las Vegas Strip properties and the Horseshoe Casino Baltimore for any additional sale or sale-leaseback transactions.
“We are significantly enhancing the quality, security and term of our leases with our main tenant,” VICI CEO Ed Pitoniak said in a statement. “Longer term, we are restocking a pipeline of growth opportunities that will allow us to continue to grow well into the future. We are doing all this with a great new partner in Eldorado.”
Sports betting and Japan
On the conference call, Reeg said he liked several of the sports betting and sports partnership deals Caesars has signed but stopped short of saying what the process will be moving forward. Eldorado has sports betting deals in place with William Hill US and the Stars Group, which includes a presence on the planned Fox Sports Network’s sports wagering application.
“We’ll consider all the alternatives,” Reeg said.
However, the combined Eldorado-Caesars company may slow or halt the process in regard to Japan. Caesars has been actively pursuing one of three integrated resort licenses in Japan for much of the past decade. But Reeg said Eldorado is primarily a domestic-based company.
“We have not made firm decisions on international (operations) yet,” Reeg said. “The opportunity internationally will have to be stupendous for us to run in that direction.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
