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Caesars Entertainment, the parent company of the world’s biggest live poker brand – World Series of Poker (WSOP), has been bought by another casino giant Eldorado Resorts. In a move that aims to do away with the company’s long-standing debt and catapult it to the top in the U.S. casino market, Eldorado will be buying Caesars for $8.58 Billion in cash and stock and has agreed to take on Caesars’ sizeable debt. Including the debt, the deal is worth roughly $17.3 Billion. As the two enterprises merge their assets over the next year, the acquisition will help create the biggest casino operator in the U.S by venue count!
The merged company known as Caesars will operate from Reno. “Eldorado’s combination with Caesars will create the largest owner and operator of U.S. gaming assets and is a strategically, financially and operationally compelling opportunity that brings immediate and long-term value to stakeholders of both companies,” said Eldorado’s Chief Executive Officer Tom Reeg.
The merger comes after months of speculation on the possible sale of Caesars. The deal was backed by billionaire investor Carl Icahn who with a 14.75% stake in the Caesars is the company’s largest shareholder and joined the Caesars Board of Directors in February.
Eldorado shares had climbed 17% in the past year, compared to a 12% decline in Caesars’ stock. As an immediate fallout of the news, Caesars shares jumped 15% on the NASDAQ to $11.48 while Eldorado’s shares dropped 7.2%.
What’s the Deal?
Apart from its flagship Caesars Palace, Caesars owns a total of 34 properties in nine U.S. states and three continents, including the Harrah’s and Horseshoe brands, according to a CNBC report. Eldorado, on the other hand, has a market value of $4 Billion, with 26 casino properties spread over 12 states.
> Once the two enterprises come together, Caesars will continue to operate under its original name, but own and operate 60 casino resorts across 16 states.
> The company’s board of directors will have 11 members, six from Eldorado and five from Caesars. Caesars will continue to operate under its original name and trade on the NASDAQ Global Select Market.
> Eldorado and Caesars shareholders will hold 51% and 49% of the combined company’s outstanding shares respectively, once the deal is closed in the first half of 2020.
> The combined entity is selling off some of its real estate currently operational under the Caesars-owned Harrah’s banner to VICI Properties Inc. for $3.2 Billion, in a bid to reduce the outstanding debt.
“It is rare that you see a merger where because of the great synergies ‘one plus one equals five. I look forward to seeing our investment prosper,” Icahn stated, confirming the sale.
“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,” he added.
Why the Deal?
As of March 31, 2019, Caesars’ long-term debt stood at $8.79 Billion, a fallout of the 2008 leveraged buyout led by Apollo Global Management LLC and TPG. In 2017, the company managed to emerge from the bankruptcy that saw a change in board members and shareholders, with both Apollo and TPG selling their shares.
Ever since he joined the company’s board of directors, Icahn, who initially owned 9.78% of the company and later increased it to 14.75%, has vociferously supported that the company be sold off. Icahn brought three of his representatives on-board Caesars and endorsed the appointment of Anthony Rodio as Caesars’ new CEO.
Talks of a deal were also held with the owner of Golden Nugget, Tilman Fertitta, who had proposed merging his restaurant and casino empire with Caesars last year but Caesars had rejected the proposal.
Eldorado has a long-standing hold in the U.S. casino market, a reputation it has painstakingly built since 1973 when the company began with a single casino in Reno, Nevada. In recent years, Eldorado has acquired MTR Gaming Group Inc. and Isle of Capri Casinos. Last year it brought on board, Tropicana Entertainment Inc., a firm that was controlled by Icahn.
“We intend to allocate the significant free cash flow from the combined company to reduce leverage while investing to improve the customer experience across the platform,” Eldorado CEO Reeg explained.
The two companies have reportedly identified that this merger will bring on benefits of $500 Million, and cash flow is expected to get an immediate boost.