It appears corporate raider Carl Icahn has decided his work was done with Caesars Entertainment is done.
The 84-year-old billionaire and activist investor sold the bulk of his stake in the newly reconfigured gaming company that he helped create.
According to Stifel Financial gaming analyst Steven Wieczynski, Icahn reduced his ownership in Caesars from 10% to roughly less than 2%, which played a part in the company’s 11% stock price decline on Monday.
Icahn acquired more than 17% of Caesars stock starting in late 2018 – and controlled up to 25% – in order to force a sale of the casino company to rival Eldorado Resorts. The transaction closed last week, more than a year after it was first announced, and created the largest casino company in the U.S. with 55 properties worldwide in 16 states. The new company retained the Caesars Entertainment name and stock symbol and is now overseen by the former Eldorado management.
Shares of “new” Caesars have been down roughly 25% since the transaction closed.
“Investors are scratching their heads as to why,” Wieczynski said in a research note that was released late Monday. “We believe it’s a combination of a couple factors, some of which, could continue to pressure shares in the near-term.”
On Tuesday, shares of Caesars, traded on the Nasdaq, closed at $30.27, up 53 cents or 1.78%.
Icahn, through a deal with previous Caesars management, controlled three seats on the company’s board. Keith Cozza, the CEO of Icahn Enterprises and one of the three Icahn representatives, resigned from the panel last Friday. Icahn Enterprises board member James Nelson and Icahn Capital fund manager Courtney Mather still remain on the board.
Wieczynski told investors Ichan’s stock sale “had a twofold impact” on the company’s stock.
“It pushed the arb investors underwater given they believed Mr. Icahn would elect more shares than cash which forced the arbs to sell their positions,” Wieczynski said. “In addition, it gave the general impression that Mr. Icahn didn’t like the combined entity which has probably scared away other investors.”
Also, last week’s comments by Las Vegas Sands executive about an “extremely tough operating environment for the foreseeable future” due to the COVID-19 pandemic, scared investors.
“Given Caesars will now be generating roughly 45% of their (cash flow) from the Las Vegas Strip, investors took the Las Vegas Sands commentary to heart and decided the Caesars story might not be worth the risk/reward in the current environment,” Wieczynski said.
The analyst added while Las Vegas is “in a very tough operating environment until the group and convention business can recover and air capacity into the market is improved,” Wieczynski said Caesars generates roughly 15% of its room nights from groups and conventions, compared to Las Vegas Sands’ roughly 50% figure.
Wieczynski said, “we have no idea when (convention business and expanded airline flights) will happen, but a vaccine is probably a must before either occurs.”
He said Caesars’ 60-million-member loyalty program, “will allow (Caesars) to source a significant amount of play (and) visitation from outside markets which is much more difficult for a company like Las Vegas Sands.
Also, Wieczynski said there is a “general doom and gloom around certain states seeing an increase in virus cases and the potential for new shutdowns.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
