TPG Capital and Apollo Global Management have sold their remaining stake in Caesars Entertainment, leaving corporate raider Carl Icahn in virtual control of the largest casino operator in the U.S.
The private equity titans, who in 2008 engineered the $30 billion leveraged buyout of then-Harrah’s Entertainment that buried the company under a mountain of debt and forced it into a Chapter 11 reorganization from which it never fully recovered, sold the 38 million shares they jointly held, equivalent to 5.7 percent of the company, for roughly $323 million.
TPG and Apollo held about 16 percent of Caesars when the company exited bankruptcy in October 2017.
Their departure could open two seats on the 12-member board of directors just as Icahn, who already holds three seats, increased his stake to more than 18 percent and is now the company’s largest individual shareholder. He has, in addition, a deal with Caesars that could gain him a fourth seat if the company doesn’t move by April 15 to appoint a CEO to his liking to replace outgoing boss Mark Frissora, who tendered his resignation in November but has agreed to stay on through April. Icahn has recommended veteran gaming executive Tony Rodio for the post. Rodio, currently CEO of regional operator Affinity Gaming, was CEO of Tropicana Entertainment when Icahn controlled that company.
The financier could also get the power to call a special meeting of shareholders under an agreement with Caesars that will be voted on at the company’s upcoming annual meeting.
This is significant because Icahn and other activist investors have made no secret of their desire to realize a better price for their holdings by pushing Caesars into a sale.
“Shareholder value would be best served and enhanced by an open sale process that will be presented to shareholders for a vote thereon,” said hedge fund Canyon Partners, which owns some 70 million shares, good for 10 percent of the equity, according to Bloomberg data.
Oppenheimer Funds, another major holder, has expressed similar sentiments.
Caesars, for its part, has said it isn’t opposed to a sale. But the only meaningful offer to date has come from Landry’s restaurants billionaire Tilman Fertitta, who proposed a reverse merger with his much smaller Golden Nugget casino chain that valued the company at roughly $13 a share. Caesars, the largest U.S. operator with 40 casinos in 13 states, rejected it as inadequate.
But then finding a buyer willing to pay more than that won’t be easy.
The investment house of Sanford Bernstein sees $8.50-$13 as a realistic range, albeit with few if any potential takers among the gaming names big enough to afford it.
“(Las Vegas Sands) is likely the only operator to be able to acquire CZR purely for cash consideration,” the firm said in a client note. “WYNN or MGM could likely do a mix of consideration, while smaller players like Eldorado and Penn National have no liquidity and are already highly levered and would be doing a reverse merger for stock.”
Bernstein also pointed out that LVS, Wynn and MGM are all bidding for a license in Japan and are unlikely to want to buy Caesars and increase their exposure to the U.S. regional markets and Las Vegas.
