Eldorado/Caesars Marriage Official, Brief Honeymoon as Work Starts on Cost Cuts, Possible Divestments

Posted on: July 20, 2020, 11:23h. 

Last updated on: July 20, 2020, 03:16h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Today — finally turning a more than year-long courtship into an official relationship — Eldorado Resorts (NASDAQ:ERI) completed its $17.3 billion takeover of Caesars Entertainment (NASDAQ:CZR), creating the largest casino and entertainment company in the US.

Eldorado-Caesars Merger
The new Caesars was born today as Eldorado completed its $17.3 billion takeover of Caesars Entertainment. (Image: Las Vegas Review-Journal)

The new company retains the Caesars Entertainment name but will be run by Eldorado management and 56 percent-controlled by shareholders of that firm. News of the deal closing comes just days after New Jersey regulators signed off on the marriage, which was the final approval ERI needed to bring the acquisition across the finish line.

The combined company owns and operates more than 55 casino properties worldwide, including an iconic portfolio of eight casino hotel properties on the Las Vegas Strip,” according to a statement.

Reno-based ERI paid $8.5 billion for the Caesars Palace operator, valuing that company at $12.30 a share, which was paid as $8.70 a share in cash and the remainder in ERI equity. The buyer is also assuming $8.8 billion worth of the seller’s debt.

No Honeymoon

Now, ERI CEO Tom Reeg and his team must get to work on realizing $500 million in cost savings — the goal stated when the company revealed its offer for Caesars in June 2019. Some analysts believe ERI, which approached Caesars about a marriage in 2018 only to be turned away, can top that number. That will be pivotal toward allaying investors’ concerns that the buyer is taking on too much debt, which will weigh on free cash flow over the next several years.

Additionally, Reeg must integrate two different corporate cultures, something that’s often a thorn in the side of buyers — regardless of industry — in large mergers and acquisitions. Under Reeg’s stewardship, ERI developed a reputation for empowering managers to run individual properties as they see fit but also became known for intense scrutiny on cost efficiencies. Conversely, Caesars is known for catering to specific guests and players — usually of the high-roller variety.

One thing the two companies share in common is that, in various markets, they’ve let some properties deteriorate, prompting criticism from regulators. Earlier this year, Reeg told the Louisiana Gaming Control Board (LGCB) that ERI will spend $500 million to spruce up its resorts in that state.

Last week, the CEO told New Jersey officials the combined ERI/Caesars will spend $400 million over the next few years enhancing the Caesars Palace, Harrah’s, and Tropicana on the Atlantic City Boardwalk. That figure will rise to $525 million if the sale of Bally’s to Twin River Worldwide Holdings (NYSE:TRWH) falls through.

Odds And Ends

It’s widely expected that the new Caesars will shed some more assets to raise cash with Las Vegas and some regional markets seen as fertile territory for sales.

At least one, if not two, Caesars properties on the Las Vegas Strip could be sold over the next 12 months. The divestment will come from some combination of the Flamingo Las Vegas, Bally’s Las Vegas, LINQ Hotel & Casino, Paris Las Vegas, and Planet Hollywood Resort & Casino.

As for issues specific to gamblers, the new Caesars will have 60 million Caesars Rewards members, making it the industry’s largest loyalty program.

“This provides even more benefits to current and future Caesars Rewards members, offering more ways to play and earn reward credits and experiences,” according to the statement.