Eldorado Wins FTC Approval for $17.3 Billion Caesars Deal, Multiple Divestments Required
Posted on: June 26, 2020, 08:59h.
Last updated on: June 26, 2020, 02:37h.
The Federal Trade Commission (FTC) is signing off on Eldorado Resorts’ (NASDAQ:ERI) $17.3 billion takeover of Caesars Entertainment (NASDAQ:CZR). But the commission is requiring Eldorado to sell gaming properties in the South Lake Tahoe region of Nevada and the Bossier City-Shreveport area of Louisiana — something the operator is already doing — to deal with charges that the combined company would harm competitive balance in those markets.
The FTC added it’s looking to “prevent competitive harm in Kansas City, Missouri,” where both companies run gaming venues. In that city, Eldorado manages the Isle of Capri, while Caesars operates Harrah’s North Kansas City. A complaint previously filed by the commission asserts the transaction creating the largest US gaming company would upset the competitive balance in the South Lake Tahoe, Bossier City-Shreveport, and Kansas City local markets.
The combination thus would increase the likelihood that Eldorado would unilaterally exercise market power, leading to higher prices and reduced quality for consumers of casino services,” said the FTC.
When the deal was announced in June 2019, analysts frequently speculated Louisiana and Northern Nevada would be regions where ERI would offload properties to allay regulators’ concerns. The company is doing just that, announcing in April that it’s selling the Eldorado Shreveport Resort and Casino in Louisiana and the MontBleu Resort Casino in Lake Tahoe to Twin River Worldwide Holdings (NYSE:TRWH) for $155 million.
By a vote of 3-1-1, the FTC approved the largest takeover in US gaming industry history, with Commissioner Rebecca Kelly Slaughter not participating, and Commissioner Rohit Chopra dissenting. In recent weeks, some mergers and acquisitions experts speculated it would either by June or July when the FTC signed off on the deal, paving the way for regulators in Indiana, Nevada, and New Jersey to do the same.
Chopra voiced his concerns about the corporate marriage on Twitter, saying, “The proposed settlement is risky and will not immediately remedy the anti-competitive harm from the merger,” while adding that there are “many unanswered questions about what comes next” because Twin River’s boardroom is controlled by a hedge fund. Twin River’s biggest shareholder is Standard General LP, a hedge fund run by TRWH director Soohyung Kim.
In his dissenting opinion, Chopra expressed dismay that the ERI/Caesars marriage provides no benefits to customers, workers, suppliers or competition, claiming that the deal is risky for all involved.
The commissioner also highlighted the large debt load – $8.8 billion – that Eldorado is taking on to acquire Caesars, saying that with the uncertainties facing the gaming business in the wake of the COVDI-19 pandemic, and the industry’s spotty history with leveraged buyouts, “The proposed transaction might make conditions even more fragile and precarious.”
Earlier this century, private equity firms Apollo and TPG took Caesars, then sporting the Harrah’s name, private in a $31 billion leveraged buyout that ultimately proved disastrous, as the gaming company, stifled by $24 billion in debt, filed for bankruptcy in 2015.
Kansas City Concerns
Soon after revealing its takeover offer for Caesars last year, ERI announced an agreement to sell Isle of Capri Casino Kansas City in Kansas City and a casino in Mississippi to TRWH for $230 million.
That transaction should be finalized at some point this year, and the FTC is intent on seeing that happen.
“Under the proposed settlement, if the Isle of Capri sale is not complete within 60 days after the proposed acquisition of Caesars closes, the Commission may, at its discretion, require Eldorado to divest the casino to a Commission-approved buyer within 12 months,” said the commission.
The FTC did not mention other markets where the combined ERI/Caesars could be required to sell assets. Caesars is selling Bally’s on the Atlantic City Boardwalk to TRWH for $25 million, and Eldorado executives previously said the company could sell one or two Caesars’ venues on the Las Vegas Strip after the deal is complete.