Anatomy Of A Merger Part I: Caesars Will Be A Land-Based Casino Giant
In a deal that has far-reaching implications, Eldorado Resorts agreed to purchase and merge with Caesars Entertainment. In a new three-part series, Playin USA will analyze how the $17.3 billion deal impacts the land-based casinos, online gambling and sports betting.
During a conference call following yesterday’s announcement, the two casino companies stated that the merger of Eldorado Resorts and Caesars Entertainment is expected to close in the first half of 2020. Of course, that’s contingent upon approval by shareholders, multiple state regulatory bodies and the FTC.
In this, the first installment of the series, Playin USA will take a look at the impact of the sale on land-based gaming, and what its land-based casino assets might look like in the future.
Is this the end of Eldorado’s acquisition phase?
Though the Caesars deal is easily the biggest move, over the past couple years, Eldorado has been quite the acquisition spree.
Eldorado acquired Isle of Capri Resorts for $1.7 billion in 2017, adding a dozen casinos to ERI’s assets.
In c onjunction with Gaming and Leisure Properties, it purchased seven casinos from Tropicana Entertainment in 2018. The price tag was $1.85 billion.
Eldorado also added the Grand Victoria Casino in Illinois for the price of $327.5 million in 2018.
At present, Eldorado operates 26 casinos in 12 states, and Caesars operates nearly 40 casinos in 13 states. When Eldorado and Caesars merge, the new “Caesars” will become the largest land-based company in the world.
As currently constituted, it will boast some 60 casinos spread across 16 US states.
The other combined numbers of the two companies are just as eye-catching:
- More than 50,000 hotel rooms.
- Four million square feet of gaming.
- More than 70,000 slot machines and 4,000 table games.
- 300 food and beverage outlets.
However, those are unlikely to be the final numbers.
The VICI component
The transaction includes a parallel deal that will see at least three Caesars properties handed off to real estate investment trust (REIT) VICI Properties for the price of $1.8 billion. The properties are Harrah’s Atlantic City, Harrah’s Laughlin, and Harrah’s New Orleans.
However, they will also remain under the Caesars’ umbrella. As it does with other casino properties, VICI will lease the properties back to the new Caesars, as well as amending its current leases with Caesars into a single master lease.
The deal also gives VICI the right of first refusal on several other properties owned by Caesars.
Divestment is likely
VICI aside, the new Caesars might see its portfolio pruned back even further.
When asked about possible divestitures during the conference call (be it overlaps, reducing debt, or FTC requirements) Thomas Reeg, CEO of Eldorado, said the following:
“On the former we start that process this week in terms of working through the FTC process so too early to say what might be necessary there, we know there are assets that we intend to prune and in a couple of cases that likely helps the FTC argument.”
One locale that is likely to get a haircut is the Las Vegas Strip. Caesars currently boasts nine casinos on or near the Strip.
Interestingly, that’s a market Eldorado has lacked and strongly desired a presence in the market. Still, nine casinos are the definition of overkill.
“There is more Strip exposure than we need,” Reeg said on the conference call. “I would expect we would be a seller of Strip assets, but that decision has not been made.”
Another market that seems supersaturated is Atlantic City. Caesars boasts three AC casinos (Bally’s, Harrah’s and Caesars) and Eldorado one, Tropicana. There’s little logic to a single company owning four of the city’s nine casino properties.
Trimming some of these prime locations could help the new company reduce inefficiencies and pay down some of its debt.
Speaking of Caesars’ debt …
After spending 10-plus years accumulating a mountain of debt, Caesars recently emerged from bankruptcy. However, even after nearly halving its debt, it still owes a lot of money — roughly $9 billion.
Couple that with Eldorado’s pre-Caesars spending spree that brought ERI’s debt up to $3 billion, and the 30% premium ERI paid for Caesars, and debt reduction becomes a priority for the new company.
After all, it was this type of free-spending, with an assist from the 2008 recession, that landed Caesars in hot water in the first place. The current amount of debt puts the new Caesars at similar risk should the economy experience a downturn.
Unless, of course, the company proactively addresses the situation.
According to reports, the parallel deal with VICI will generate $3.2 billion to pay down debt. And during the conference call, Reeg stated the deal would result in $500 million in cost savings in year one.
If it can spin-off a few other properties, it’s debt load could be reduced significantly, without ceding control of its active market.
In Part Two of this series, Playin USA will look at the online gambling implications of the deal.