Eldorado Resorts and Caesars Entertainment have been talking about a deal since the company fell under the influence of billionaire Carl Icahn. Eldorado completed a purchase of Icahn’s previous gaming company, Tropicana Entertainment, in 2017. When Icahn bought enough shares to control Caesars Entertainment—18 percent and three board seats—and consider a sale of the company, Eldorado was one of two companies—Tilman Fertitta’s Golden Nugget company was the other—thought to be a natural partner.
Icahn’s hand-picked CEO Tony Rodio, who was Icahn’s representative in the Tropicana deal, took over a month ago and discussions with Eldorado have accelerated since then.
Eldorado operates 26 casinos in 12 states and Caesars operates almost 40 casinos in 13 states.
A source told the Wall Street Journal that the talks had progressed to an “advanced” stage. Share prices for both Caesars and Eldorado rose nearly 5 percent on the news that Caesars shares could fetch as much as $11 a share, which would value the company at $7.4 billion. The Journal report said Caesars had already rejected a bid of $10.50 a share, but that any deal would require taking on substantial debt, a problem that led Caesars into bankruptcy in 2016. Caesars still had $9 billion in debt on the books for a company only currently valued at $6 billion.
Fertitta had approached Caesars prior to Icahn’s involvement, and suggested a reverse merge with his Landry’s company, the parent of the Golden Nugget, and owner of dozens of successful restaurant brands. No mention of Fertitta’s continued involvement was made in last week’s media reports.
Eldorado CEO Tom Reeg was focusing on cost-saving measures of around $500 million should Eldorado make the acquisition. Analysts weren’t certain that could be accomplished.
In a recent earnings call, Caesars CFO Eric Hession said, “We’re focused on reducing corporate costs. They are currently elevated due to our IT transformation and sports betting businesses, and we expect to show improvement later in the year from the current run rate.”
Analysts were split on a prospective deal. JPMorgan’s Daniel Politzer rates both stocks as “overweighted.”
“At this point, we believe both Eldorado and Caesars shares would react positively to a deal,” wrote Politzer. “Our thinking on ERI trading higher has evolved as we believe Eldorado’s investors have warmed up to the prospect of a deal and gotten more comfortable with potential synergies and leverage, though concerns on timing/late cycle still remain.”
Harry Curtis from Nomura was more cautious. “We have faith in Tom Reeg’s operational skills, but we believe he would need to convince many more investors that now is the right time to take on such a challenge,” he said.
Other analysts believe any Caesars deal would involve more than one company because of regulatory and concentration issues in several jurisdictions.
