Clearly, the biggest news of recent days, and probably of the entire year, is Eldorado Resorts buying Caesars Entertainment.
For Eldorado, the acquisition will culminate a series of purchases that transforms the once small Reno company into America’s biggest casino operator.
And given Eldorado’s track record, the odds are that this will be a very profitable acquisition, not just adding size.
CEO Tom Reeg believes the company can generate up to $4.5 billion in EBITDAR and $1.5 billion in free cash flow, or approximately $10 a share.
That suggests Eldorado stock could trade over $100, not bad for a company now selling below $50 and that not all that long ago was in the single digits.
Again, Eldorado has a history of execution, a fact the company pointed out in noting that it has raised EBITDA margins from 16.5 percent when it began its acquisition spree in 2014 to 25.1 percent last year.
Eldorado expects first-year synergies of $500 million, $375 million of which would come from lower costs. Reeg gave an example of Eldorado’s leaness compared to Caesars, such as Eldorado spending $2 million a year for third-party service provides while Caesars spends $60 million.
And, you can bet that the $500 million figure is very conservative, especially beyond the first year.
Further, with both companies near to completing hotel room renovations, the combined company will be in cash flow harvesting mode, Reeg said.
Here are some quick observations on the deal:
- If there were an award for casino CEO of decade, it would have to be a co-presented to Reeg and predecessor Gary Carano, now Eldorado’s executive chair. The stock has multiplied 10-fold under their stewardship and, as noted, the price could more than double today’s in the relatively near future.
- A new approach. Caesars has been a bureaucratic and centrally run company. The new company will take advantage of centralized functions such as purchasing, but will return empowerment to executives at the regional level who are closer to customers, Reeg said.
- Big numbers. The combined company will generate nearly $7 billion in revenue, operate up to 60 US properties and include 65 million players in its database.
- Whew! It’s over. Eldorado’s five-year run of acquisitions is basically over. Further, it has enough to chew on in the U.S. so international expansion is probably done.
- Las Vegas Strip might get its competitiveness back. One criticism of Las Vegas has been the lack of diversity with Caesars and MGM Resorts controlling so much of the Strip.
That will change somewhat as Eldorado slims down Caesars’ Strip presence. Already, TI owner Phil Ruffin and Golden Nugget owner Tilman Fertitta have jumped up to express interest in buying properties.
While Reeg did not hint at what properties might be sold, Harrah’s near TI might be logical for Ruffin and Planet Hollywood to the south could be a sale candidate.
As for other possible buyers, Boyd may be a candidate to return to the Strip.
- REITs do it again. Once more, a deal that might not have seemed possible a few years ago has been made possible by a REIT, in this case VICI Properties.
- Related winners. William Hill and the Stars Group have been little-publicized winners as Eldorado expects to take its sports betting partners with in the expanded company.
