It’s looking like a long shot—a $500 million long shot𑁋but Caesars Entertainment could see a merger proposal from Eldorado Resorts by Memorial Day.
Eldorado has been in due diligence to possibly acquire the Las Vegas-based gaming giant since last fall, a process, the New York Post reports, that now hinges on whether Eldorado can find $500 million in cost cuts.
If not, CEO Tom Reeg will take a pass, the Post said.
“My hunch is he’s not going to get there,” a source told the newspaper.
Caesars reportedly has given Eldorado until the end of the month to make an offer.
Caesars reported $332 million in corporate expenses last year, and that’s a sore point for corporate raider Carl Icahn, who has been buying up shares since January and now controls upwards of 30 percent of Caesars’ equity and three of 12 seats on the board of directors.
Despite the scale and diversity of its holdings, which includes a major presence on the Las Vegas Strip, Nasdaq-listed CZR has languished around $9 a share since the company emerged from a lengthy Chapter 11 reorganization in 2017, and Icahn, famed for buying companies on the cheap and flipping them for big profits, has been pushing since early this year for a sale.
The problem, however, may be that very scale and diversity.
Reno-based Eldorado has been an aggressive buyer of casinos the last several years, growing from a few Northern Nevada casinos to a regional giant with 26 properties in 12 U.S. states. But with 50 casinos in the U.S. and worldwide, and three times’ Eldorado’s revenues, Caesars would be a big bite for the much smaller Eldorado to consume, and it certainly won’t come cheap.
Merger talk has been swirling around Caesars ever since Icahn got involved, and the company has bowed to its largest shareholder by forming a special committee to evaluate offers. To date, though, the only actual offer reported publicly has come from Tilman Fertitta, the billionaire restaurateur and reality TV star whose five-casino Golden Nugget chain would find the company an even bigger bite to swallow. Late last year, Fertitta pitched a reverse merger that valued Caesars at roughly $13 a share. Management rejected it. He’s said to be still interested, but reports are he’s having difficulty securing financing for a fresh bid.
An alternative would be for Icahn to induce management to shop the portfolio individually. Analyst Chad Beynon of Macquarie Securities said if Caesars has a preference to sell for cash instead of equity, a series of smaller deals that are easier for buyers to finance would be “the best way to do it.”
Industry consultant Frank Fantini sees this is an “unprecedented” opportunity, “simply because of the huge size of Caesars.” As he put it, “Who else has this many properties to sell?”
It’s a prospect that could be appealing to a number of suitors, Phil Ruffin, the Kansas trucking magnate, among them. Ruffin, who owns Treasure Island Hotel & Casino on the Las Vegas Strip, has made it known that he’s ready to snap up some of Caesars’ Strip assets if they become available.
Or if Icahn prefers to grow Caesars, then paring it down to its core assets now might bring more value later, analysts say, attracting prospective buyers who might balk at paying a high price for the portfolio’s weaker components.
Looking across the Strip, they’ve identified Paris Las Vegas and Planet Hollywood as two of Caesars’ most attractive stand-alones. Then there is Bally’s Las Vegas, which is connected to Paris via a corridor.
Elsewhere on the Strip there is Cromwell and The Linq, which could be similarly attractive as boutique plays. Bundling them with the Flamingo could yield an even higher valuation than selling them piecemeal. The three New Jersey casinos𑁋Harrah’s Atlantic City, Bally’s Atlantic City and Caesars Atlantic City𑁋could be appealing as a package as well.
Management, meanwhile, has taken a number of value-enhancing steps, targeting some $40 million in annual reductions in corporate overhead and recently reaching a deal to sell a majority-owned casino in South Africa that will generate a reported $43 million when it closes later this year.
On the growth side, the company is aggressively pursuing sports betting partnerships across the U.S. and continues to pursue a development deal for a megaresort in Japan.
Regionally, the company is rebranding its southern Indiana casino as a Caesars property as part of an $85 million move to a totally land-based operation that will be completed in December. The new casino will occupy 100,000 square feet and will feature a sportsbook, five restaurants, a VIP lounge, meetings and conventions space and a 1,300-seat concert arena.
