We don’t know how the sell-Caesars drama will work out, but we do know this about Carl Icahn:
- He almost always gets his way.
- He extracts a significant profit in every deal he’s involved in.
- He knows the casino industry, as evidenced by his purchases, and sales, of Tropicana Entertainment, Trump Taj Mahal and Fontainebleau Las Vegas.
Now, with 28 percent ownership of Caesars and with three seats on the 12-person board of directors, and more likely to come, Carl is king of the Caesars empire. So, expect a sale of some kind at a price significantly higher than today’s.
So far, the most publicized possibilities are that Eldorado Resorts buys Caesars, or that Tilman Fertitta does, perhaps with Icahn remaining a major shareholder.
The Eldorado possibility has been subject of study by several analysts, who think the Reno-based company can pull off the transaction and be rewarded with a stock price far above its current $50.
Daniel Politzer of JP Morgan thinks Eldorado could be $72 to $80 after a deal. Chad Beynon of Macquarie sees 3 to 50 percent stock increase depending on cost and how the deal is structured.
Buying much larger Caesars would seem a daunting task for Eldorado, but the company has thrived on aggressive acquisitions in recent years, and there is considerable confidence that Chairman Gary Carano and CEO Tom Reeg can pull it off.
Fertitta teaming up with Icahn presents an interesting prospect. It would combine two brilliant, independent, strong minds. In other situations, such a combination would seem pregnant with future clashes. But in this case, it might be the perfect marriage of two guys who understand how to extract value and who are determined to do so.
One can imagine Fertitta making the hard, cold, productive decisions and creating value that allows Icahn to cash out at a satisfactory profit.
Another possibility that has been speculated is Caesars going to the asset-light model, selling all of its real estate and becoming just a casino manager or, perhaps in the lightest of light scenario, just the holder of trademarks and collector of marketing and other fees.
Yet another possibility Is that Eldorado and Fertitta, and perhaps someone else, team up to buy the company and divvy out the parts.
Regardless of how this works out, Caesars will be a much different company sometime within this year. Even in a straight-out purchase by Eldorado or Fertitta, a fair number of properties will have to be sold.
Finally, if Fertitta lands Caesars through a reverse merger, Golden Nugget is likely to go public, allowing investors to ride Feritta’s golden coat tails.
Japan, Land Of The Not-So-Rising Sun?
We have long been less enthralled with the prospects for casino resorts in Japan than many others.
Japanese ambivalence about gaming, the likely insistence of Japanese ownership, or at least partial ownership, and the country’s internal political divisions have all made adoption of the so-called Singapore model seem unlikely.
Now, it appears others are starting to share some of the doubts.
Japan’s casino revenue may fall short of expectations due to government restrictions on the industry, high operating costs and high initial investments, Inside Asian Gaming has quoted analyst Praveen Choudhary of Morgan Stanley.
Choudhary expects Japanese gambling revenue of $9 billion annually based on casinos in two large cities and one regional casino. However, that may be optimistic, he added.
If Japan goes for smaller cities to host casinos, results could underwhelm with $4 billion in revenue and $1.4 billion in EBITDA annually, Anil Daswani of Citigroup said.
The returns would be nowhere near attractive as those in Macau, he noted.
Casinos are unlikely to work with junkets to bring in VIP gaming rooms and customers due to high construction and operating costs, Choudhary added.
He also pointed to the requirement that casino space be limited to 3 percent of total floor space and that locals will be charged US$50 to enter and will have restrictions on the number of times they visit casinos.
Japan will be a very worthwhile prize to the winners but maybe not quite a Singapore-like grand slam.
