Caesars, Eldorado Still Talking

A merger between Caesars Entertainment and Eldorado Resorts, with Eldorado in control, could be announced this month, according to the Wall Street Journal. The New York Post, however, says the two sides are still haggling over price. Eldorado CEO Tom Reeg (l.) told New Jersey regulators that his company has been “an inquisitive company in the past.”

Caesars, Eldorado Still Talking

Reports are conflicting, but it looks like Caesars Entertainment and Eldorado Resorts are closing in on a merger agreement that would create the largest casino company in the world.

The Wall Street Journal said last week that a cash-and-stock deal could be announced as soon as this month with Eldorado in charge of the combined company.

But the New York Post, another authoritative source in gaming matters, disputed that with a report saying Caesars had rejected an Eldorado bid of $10.50 a share as too low but the two sides were still talking.

Caesars’ far-flung portfolio of 40 casinos in 13 states including nine on the Las Vegas Strip effectively has been for sale, in whole or in part, since the gaming giant emerged from a two-year Chapter 11 reorganization in the fall of 2017, battered, but with a balance sheet lightened by around $10 billion of debt and its casinos in the hands of a newly created real estate investment trust controlled by its former creditors.

The process didn’t really heat up, however, until late last year, after Caesars’ board rejected a $13-a-share reverse-merger with Tilman Fertitta’s Golden Nugget chain and corporate raider Carl Icahn began scooping up chunks of the gaming giant’s underperforming stock.

Reno-based Eldorado, one of the most active gaming companies in the acquisitions market, was already in the picture at that point but didn’t emerge as the apparent front-runner until this spring, in no small part because Icahn and Eldorado have history.

Eldorado, for its part, has busily transformed itself from an operator of a handful of northern Nevada casinos into a national gaming powerhouse, buying MTR Gaming in 2014 and Isle of Capri Casinos in 2017 and then making friends over the bargaining table with Icahn last year by partnering with industry REIT Gaming and Leisure Properties to buy Tropicana Entertainment’s seven-casino portfolio from the financier for $1.8 billion.

Eldorado now owns or operates 26 casinos in 12 states, while Icahn, now the flag-bearer for activist investors clamoring for a sale of Caesars, has amassed control of around 28 percent of Caesars’ equity, he’s claimed three seats on the board of directors, and he’s installed Tony Rodio, his former operations chief at Tropicana, as CEO.

Deutsche Bank gaming analyst Carlo Santarelli said last month that the odds of an Eldorado-Caesars tie-up were on the rise and suggested the deal would be a “net positive for Eldorado, Caesars and the gaming group more broadly, given the valuation implication and broader halo of (a) busy merger and acquisition environment”.

There are obstacles. One is the sheer breadth of Caesars’ holdings, which poses anti-trust issues that may have deterred other, and possibly larger, suitors. The other is Caesars’ debt, still daunting at $18.5 billion. Eldorado’s stands at $3.5 billion.

The big plus, of course, is Caesars’ massive Strip presence. Santarelli has suggested that Eldorado could look to take advantage of a “healthy appetite for Las Vegas Strip properties” to reduce its exposure there,

and wrestle down the debt from the buyout in the process, by selling some of the Strip assets.

“From an analytical perspective, we think the premium to Caesars holders could be limited on face value,” Santarelli said, “though we believe the equity component in Eldorado would make for a more than satisfying return for the Caesars stakeholder.”

Meanwhile, New Jersey’s Casino Control Commission has approved Eldorado Resorts acquisition of the Tropicana Atlantic City casino and granted the company a casino license in the state.

Eldorado acquired the Tropicana in a deal with Tropicana Entertainment last year. The company now enters the Atlantic City market, but is now also negotiating a merger with Caesars Entertainment, which own three Atlantic City casinos.

New Jersey’s Casino Control Act prohibits regarding “undue economic concentration” by one license holder, but Caesars had managed four city properties before closing the Showboat casino in 2014.

During the licensing hearing, Commissioner Sharon Harrington asked Eldorado CEO Thomas Reeg about the company’s plans to merge with Caesars.

“I can’t comment on a particular move,” he said according to the Press of Atlantic City. “I would say we have been an inquisitive company in the past. To the extent there are opportunities that make sense for our shareholders … we would take a hard look at those.”

Reeg added that with potential “there are a host of concerns that other constituencies would have,” but that Eldorado would “thoughtfully work through them.”

In 2018, billionaire Carl Icahn’s Tropicana Entertainment sold its real estate holdings to Gaming and Leisure Properties for $1.21 billion and merged its gaming and hotel operations into Eldorado Resorts, which will lease the sold properties for $640 million. Icahn has a nearly 29% ownership stake in Caesars, according to the Press.

CCC Chairman James Plousis said he expected Eldorado to “positively contribute to this market and support Atlantic City’s continued upward trajectory.”

Tropicana Atlantic City is the second-highest gaming-revenue producing property in the market, behind Borgata Hotel Casino & Spa.

Steve Callender, senior vice president of regional operations for Eldorado, said at the hearing that Eldorado has committed to the property by investing in capital projects, such as the nearly $10 million William Hill sportsbook, and other infrastructure improvements throughout the casino hotel.

“Tropicana is built to compete,” Callender said. “With the money we’ve invested over the last five or six years, from a diversification standpoint, we outpoint every casino in Atlantic City. There’s just more to do here, more to see and more to be involved with.”