Eldorado-Caesars $17.3B deal ‘will get done’ despite coronavirus-inspired financial concerns

Howard Stutz has over 30 years of experience reporting on the gaming industry.

Despite this week’s coronavirus-influenced stock price declines, and the pressure that’s been placed on banks as a result, analysts said Thursday the $17.3 billion merger between Eldorado Resorts and Caesars Entertainment will be completed before the first half of the year.

“Our impression, from our discussions across the industry, is that all of the parties involved remain steadfast in their expectation that the deal will close and the value opportunity remains,” Jefferies Gaming analyst David Katz wrote in a Thursday morning research note.

Banks are reportedly facing challenges in financing $7 billion associated with the transaction.

Innovation Capital Group President Matt Sodi, during a conference call to discuss the coronavirus impact on the gaming industry, said “we’ll likely see that deal get done. It has to get completed.”

Eldorado, which is acquiring Caesars, saw its stock price dip another 37.51% Thursday, closing at $15.48, down $9.29. The company’s Nasdaq listed shares have declined some 77% in the past few weeks as the ongoing spread of the Covid-19 coronavirus strain continued to cause fear within the investment community. Caesars’ stock price fell $1.91, or 19.49%, to close at $7.89 on the Nasdaq.

Under the terms of the merger agreement, Eldorado will pay $8.40 per share in cash and 0.0899 shares of Eldorado stock for each Caesars share, or $12.75 per share. The combined business will be called Caesars, and its shares will be traded on the Nasdaq.

The transaction will create a regional gaming giant with roughly 60 properties in 18 states.

Last week, Bloomberg reported that several of the banks that are providing more than $7 billion in loans to finance the deal may face challenges in off-loading the debt. The news service cited sources that said the banks face an uphill battle to offload the debt to investors as fears over the coronavirus outbreak is disrupting the travel and leisure industry.

“We continue to focus on the highly uncertain near-term impairment to the underlying business, but more importantly on whether the longer-term opportunity remains intact,” Katz told investors.

Seven states have approved the Eldorado-Caesars merger, with sign-offs still required from more than a dozen other states, including Nevada. Also, the Federal Trade Commission has yet to weigh-in on the merger.

Several casino transactions hinge on the deal being completed.

On Monday, Eldorado agreed to sell its management stake in the Montbleu Resort in Lake Tahoe to Maverick Gaming for an undisclosed price. In January, Eldorado agreed to sell the Eldorado Shreveport in Louisiana to Maverick for $230 million.

Both deals are expected to close in the second half of the year and would remove any federal anti-trust issues hanging over the deal.

Eldorado also has a deal in place to sell Isle of Capri Kansas City in Missouri and Lady Luck Vicksburg in Mississippi for $230 million to Twin River Worldwide Holdings, a transaction expected to close in the second half of the year.

Real estate investment trust VICI Properties is playing a part in the transaction.

In January, the company raised $2.5 billion to fund its purchase of three Caesars properties under the Harrah’s brand in Atlantic City, Laughlin, Nevada and New Orleans for a combined $1.8 billion. VICI will lease the operations back to Eldorado for a total annual rent of $154 million.

“We continue to focus on the range of outcomes between now and the expected closing of the deal in mid- to late-April,” Katz wrote Thursday. “In general, the range is extremely wide, but we expect it remains within the bounds of thoughtful management for Eldorado, Caesars, and VICI, and we expect the parties involved are contemplating contingencies. We do not consider the opportunity progressing toward long-term impairment.”

In February, Eldorado CEO Tom Reeg said told analysts he could “see the finish line” for the deal.

“We are 100% focused on getting (the deal) done,” Reeg said. “There is absolutely zero risk on the financing side.”