After Months of Chatter, Eldorado, Caesars Entertainment Expected to Head to Altar in $18 Billion Deal

Posted on: June 23, 2019, 04:59h. 

Last updated on: June 23, 2019, 04:59h.

Following a lengthy courtship and months of speculation, regional gaming company Eldorado Resorts, Inc. (NASDAQ:ERI) and Caesars Entertainment Corp. (NASDAQ:CZR) are expected to announce an $18 billion marriage that will create one of the largest US casino operators.

Caesars Palace in Las Vegas. Regional operator Eldorado and Caesars are merging in an $18 billion deal. (Image: Travelzoo)

Citing unidentified sources close to the matter, Reuters reported Sunday that the cash and stock merger could be officially revealed on Monday.

The $18 billion price tag, which includes debt, values Caesars Entertainment at $13 per share, a roughly 30 percent premium to the stock’s closing price of $9.99 on Friday, June 21. Caesars has about $8.8 billion in liabilities.

That is well above the $10.50 a share some analysts speculated Eldorado needed to offer to compel Caesars to sell. It was reported earlier this month that Reno-based Eldorado had made that offer for Caesars and it was turned down.

Ownership of the new company is expected to be “roughly” split between Eldorado and Caesars shareholders, Reuters reported, citing the unidentified sources.

Signs Were There

There were plenty of suitors for the operator of Caesars Palace, Harrah’s, and Bally’s when it became clear last year Caesars could be a takeover target. Billionaire Tilman Fertitta’s Golden Nugget and Treasure Island owner Phil Ruffin were among the names floated as potential buyers of Las Vegas-based Caesars.

Eldorado, which owns 26 casinos in 12 states, but none in Las Vegas, emerged as a credible buyer of Caesars in the fall of 2018. In March 2019, it was reported that Eldorado and Caesars entered into talks about a possible combination after billionaire financier Carl Icahn became Caesars’ largest shareholder.

That same month, Icahn said he believed the “best path forward for Caesars requires a thorough strategic process to sell or merge the company.” At the end of the first quarter, Icahn owned 99.25 million shares of Caesars.

Last week, Eldorado agreed to sell three casinos, two in Missouri and one in West Virginia, in a combined $385 million transaction with Century Casinos and VICI Properties, a move that stoked speculation Eldorado was readying to make a move on Caesars.

Adios To Rodio?

The combined company may be evenly split, or close to it, among Eldorado and Caesars investors, but it is expected that Eldorado management, led by CEO Thomas Reeg, will run the day-to-day operations. That could mean Tony Rodio’s tenure at the helm of the operator of the Flamingo and Paris casinos in Las Vegas could be nearing an end.

Rodio, a gaming industry veteran and Icahn ally, became CEO of Caesars Entertainment in mid-April, but as the Eldorado talks heated up, speculation swirled about Rodio’s future.

As talks intensified, it became clear Eldorado wanted to trim some fat at Caesars, including $500 million in staff costs. Last year, Caesars had corporate expenses, including executive compensation, of $332 million, according to regulatory filings.

Creating A Giant

Based on last Friday’s market close, Eldorado and Caesars have a combined market capitalization of just under $11 billion, forming the fourth-largest US gaming company by that metric behind Las Vegas Sands Corp. (NYSE: LVS), MGM Resorts International (NYSE: MGM) and Wynn Resorts, Ltd. (NASDAQ: WYNN).

At the end of last year, Caesars had 53 gaming venues in 14 states and five countries outside the US, so even with Eldorado’s recently announced sale of three casinos, the combined company owns more than 75 casinos.

Missouri, where Eldorado is selling two, gaming properties, is not the only state where the two companies have some geographic overlap. Analysts previously said that in addition to the Show Me State, Lake Tahoe, Laughlin and Reno along with Louisiana were among the markets where a combined Eldorado/Caesars could shed some assets.