‘Embodying Complexity’: Why a Caesars Takeover Could Be a Risky Bet

• A potential takeover of Caesars Entertainment has a lot of moving parts
• Those include possible outcomes for VICI Properties, the owner of Caesars real-estate
• Analyst says the outcome for Caesars is one of the most important near-term issues for the industry

It’s widely known in industry circles that Caesars Entertainment (NASDAQ: CZR) is a takeover target, but things have been quiet on that front for more than a month, prompting some investors to ponder what’s happening.

In a new report, Jefferies analyst David Katz notes he and his team have been fielding solid call volume from clients wanting to discuss the Caesars takeover situation.

Following March reports indicating activist investor Carl Icahn offered $33 a share for the casino operator only to be topped by a $34 per share bid from Tilman Fertitta, things have been quiet. However, it is clear that any deal for Caesars will involve some level of difficulty.

Investors continue to ask about capital structure, regulatory dynamics, positioning for VICI and impact on the rest of the sector,” observes Katz. “We have no specific view on the likelihood of a deal, but believe the implications for value on the sector, for opco, propco and digital assets and any deal would likely embody complexity.”

One reason things have quiet on the Caesars takeover front is the belief that the gaming company entered into a 45-day exclusive negotiating period with Fertitta, which is likely close to expiring.

Caesars/VICI Situation Is Complex in its Own Right

How VICI Properties (NYSE: VICI), the owner of Caesars Palace’s real estate, figures into a takeover of the gaming company is a significant issue.

The two sides are in talks about improving that situation and there’s unconfirmed speculation that VICI may have no choice but to consider lowering the rent. However, that would mean Caesars is giving up something, too. What that would be remains to be seen.

It’s possible that a prospective buyer of Caesars wants to resolve the VICI situation as well or could move to divest some of those regional casinos in an effort trim long-term obligations, but all of that is up in the air for now.

Other Caesars Takeover Complexities

Finding other potential impediments in a Caesars takeover isn’t difficult, particularly if Fertitta is the buyer.

There’s the issue of his stake in Wynn Resorts (NASDAQ: WYNN). He owns about 12% of Wynn shares and it’s believed though not confirmed that he could eliminate that position to finance a portion of the Caesars takeover.

Then there are possible regulatory complexities because Fertitta’s Golden Nugget and Caesars overlap in a variety of markets, including Atlantic City, NJ and Lake Tahoe and Laughlin, Nevada, among others.

It’s possible some state regulators could require divestments to sign off on a deal. That’s to be determined as well, but what’s not up for debate is the significance of another Caesars takeover.

“In short, we view the outcome as potentially among the most important issues for the sector near term,” concludes Katz.