Caesars, Eldorado Tie-Up Brings New Money to the Table

Casinos & Hotels

Published: June 7, 2019 2:05 pm

Last Updated: January 30, 2020 7:54 pm

On Thursday, The Wall Street Journal reported that Caesars Entertainment Corp. (NASDAQ: CZR) and Eldorado Resorts Inc. (NYSEARCA: ERI) are near an agreement that would see Eldorado acquire the larger company in a cash and stock transaction as soon as the end of this month.

Activist investor Carl Icahn, who holds an 18% stake (and three board seats) in Caesars, according to Bloomberg, has pushed the company to sell itself. Caesars reportedly rejected a buyout from privately held Golden Nugget last year and has talked with Eldorado sporadically since then.

A price was not revealed, but the New York Post said that Eldorado’s offer totaled $10.50 a share in cash and stock. Icahn reportedly agreed with Caesars’ management in rejecting the offer. One source told the Post that the offer was “underwhelming.”

That has fired up investors who think that $11 a share (or more) may be in the cards and that now that the word is out, other potential buyers might drive the price even higher. Other sources told the Post that a deal between Caesars and Eldorado is “very close.”

One significant issue is Caesars’ outstanding long-term debt of $9.2 billion, more than three times Eldorado’s own long-term debt liability. Since its bankruptcy filing in 2015, Caesars’ long-term debt actually has increased from around $8.5 billion. That’s still a long way from the $22 billion or so the company had racked up by the end of 2014.

That may not be a big deal to some investors, but banks are not so happy with the likely continuation of the Federal Reserve’s low-interest-rate policy. Chair Jerome Powell’s comments earlier this week indicated that cutting the rate later this year may be under consideration.

Eldorado, with about $3 billion in long-term debt, may have to borrow even more to make the acquisition, only to acquire another $9 billion in debt.

Investors don’t seem too concerned, however. Shares of Caesars traded up about 5% in the mid-afternoon Friday and Eldorado shares were up about 4%. Neither company currently pays a dividend, but shares of both are up about 40% since the beginning of the year, at least some of which must be due to a possible merger deal. Alternatively, investors could put the money on Las Vegas Sands Corp. (NYSE: LVS), which trades up about 9% for the year and also pays a dividend yield of 5.6% ($3.08 annually per share).