Eldorado Resorts has doubled its size and catapulted itself into the front ranks of regional casino companies with a .7 billion deal to acquire Isle of Capri Casinos.
Reno, Nev.-based, publicly traded Eldorado will pay $23 a share for Isle of Capri, or 1.638 shares of Eldorado common stock, representing a 36 percent premium over Isle’s closing price as of September 16.
Eldorado shareholders will own approximately 62 percent of the new entity. Isle shareholders will own 38 percent.
Thirteen casino resorts under the Isle of Capri and Lady Luck brands will be added to Eldorado’s portfolio—currently comprised of three casinos in Reno, racinos in Ohio, Pennsylvania and West Virginia and a casino in Shreveport, La.—giving it a total of 20 across 10 states.
In terms of market cap, the company will be the second largest in the U.S. regional market, good for $1.8 billion in revenues in fiscal 2016 on a pro forma basis.
A “transformational growth opportunity” is how CEO Gary Carano described the deal.
“Strategically, the combination builds the scale of our gaming operations and further diversifies the geographic reach of our operations without any overlap with our existing properties,” he said.
Isle CEO Eric Hausler sees the merger as the culmination of his team’s efforts to rejuvenate the company and its balance sheet, providing Isle of shareholders with “substantial and immediate value, as well as the opportunity to participate in the upside potential of the combined company”.
The boards of directors of both companies have signed off on the deal. Closing it awaits regulatory and shareholder approvals. Those are expected by the second quarter of 2017.
Analysts were generally positive about the deal from both companies.
“The acquisition of ISLE does not come as a big surprise to us for several reasons. The current circumstances of the company left several questions, including the maturation of the balance sheet and limited capital commitments for the future,” wrote David Katz with the Telsey Group. “As well, the historically low leverage levels and generally up to date properties coupled with the excess asset value in land all positioned the company well as an acquisition target. We had previously indicated that the splitting of the real estate from the brands while possible, was more complex than others and a therefore a less likely outcome. We believe the merger with ERI is a logical alternative for ISLE and generally fits well based on our knowledge of their assets.”
Union Gaming believes that the deal means more regional consolidation in the future.
“The ERI/ISLE deal is the latest in a spat of regional gaming M&A activity over the last twelve months as market conditions remain favorable with continued low interest rates, liquid credit markets, and two gaming REITs in the space that have upped the ante,” Union Gaming wrote in a note to investors. “While the formation of gaming REITs had left many industry observers speculating strategic M&A in the regional gaming space would be over, the ERI/ISLE deal is yet another example that the industry is large enough for both strategic and financial players.”
Mayer Brown LLP represented Isle of Capri Casinos, Inc. in its sale to Eldorado Resorts.
The Chicago-based Mayer Brown team was led by: Corporate & Securities partners Paul Theiss and William Kucera and associates Tyler Born, Ryan Ferris, Tyler Pate, Chardon Stuart and Eric Tubbs; Tax Transactions & Consulting partner Lee Morlock; and Employment & Benefits partner Debra Hoffman.
