A key element in Eldorado Resorts, Inc.’s (NASDAQ:ERI) $17.3 billion takeover of Caesars Entertainment Corp. (NASDAQ:CZR) is the acquirer’s ability to find at least $500 million in cost savings. That’s a figure that was floated even before the regional gaming company made its offer official.
Caesars is helping its suitor out on the cost reduction front. The company behind the Harrah’s and Horseshoe brands, among others, has been trimming management jobs, an initiative it started last month.
On October 10, 2019, in an effort towards achieving greater operational efficiency, the Company initiated a Voluntary Severance Program (VSP),” according to a Caesars filing with the Securities and Exchange Commission (SEC).
The current round of cuts is expected to save Caesars $40 million, and the company is targeting cost reductions of $75 million to $100 million before it officially becomes part of Eldorado next year. That deal, which was recently approved by investors in both operators, is expected to close in the first half of 2020. But some analysts believe it’s possible it could be finalized in the first quarter.
Management headcount reductions at Caesars in advance of the Eldorado marriage make sense, because when the deal is official, Eldorado brass, led by CEO Tom Reeg, will oversee day-to-day operations of the combined company. The firm is retaining the Caesars name.
Prior to formally announcing the $17.3 billion offer on June 24, Reeg and his team were believed to have kicked the tires on Caesars for several months. They spent significant time analyzing how at least $500 million in savings could be realized and how difficult it would be to achieve that objective.
During the evaluation process, Reeg is believed to have specifically looked for ways to pare Caesars’ compensation costs, particularly among management and higher-up executives.
Although Eldorado is shelling out $17.3 billion for Caesars, a price tag that sparked some concern in the analyst community, the regional gaming operator has been a Wall Street favorite for some time due in large part to the ability of Reeg and his team to not only make smart acquisitions, but find considerable cost savings in those deals.
What’s Next For Caesars
“The VSP was offered to non-property, US-based corporate employees in management roles, as defined by the program, excluding certain revenue focused departments,” said Caesars in the SEC filing. “The process for eligible employees to volunteer and be accepted was completed on October 28, 2019. We expect to record severance and stock compensation charges of up to $20 million during the fourth quarter related to this program.”
The company did not identify regions in which management has been let go, nor did it mention areas or specific properties where additional staff cuts could be coming.
It is widely expected that Eldorado will continue shedding assets, including a Caesars property or two on the Las Vegas Strip, to reduce expenses and generate cash after the acquisition is completed.
Other avenues for trimming costs potentially include Eldorado putting a halt on Caesars international expansion plans and, likely further down the road, possibly spinning off Caesars’ sports betting and internet casino businesses.