Reports: Eldorado Resorts nearing deal to merge with Caesars Entertainment

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

Two media reports suggested Friday that Caesars Entertainment and Eldorado Resorts were close to creating the world’s largest casino company, but more negotiations are required to make the deal work.

The Wall Street Journal said a cash and stock deal could be announced later this month, with Reno-based Eldorado management running the combined company. The New York Post, however, said Las Vegas-based Caesars rejected a takeover offer from Eldorado of $10.50 per share as too low, but the sides are continuing to talk.

Eldorado operates 26 casinos in 12 states and has been one of the most active gaming companies in the acquisition market over the last two years. In 2017, Eldorado acquired Isle of Capri Resorts for $1.7 billion. Last year, Eldorado bought seven casinos from Tropicana Entertainment for $1.85 billion in a joint venture with real estate investment trust Gaming and Leisure Properties, and added the Grand Victoria Casino in Elgin, Illinois for $327.5 million.

The company is now the third largest regional based casino operator in the country and CEO Thomas Reeg has suggested Eldorado would like to own a property on the Las Vegas Strip. Eldorado operates Tropicana Atlantic City and casinos in all the major Nevada markets – Reno, Lake Tahoe and Laughlin – except Las Vegas.

Caesars, which operates close to 40 casinos in 13 states including nine resorts on or near the Las Vegas Strip, has been on the sales block much of the year after billionaire corporate raider Carl Icahn acquired 28.5 percent of the company. He controls one-fourth of the company’s board and installed Tony Rodio as CEO last month.

Icahn, the 83-year-old corporate raider, took control of Caesars through stock acquisitions he completed between December and March. He wants to either sell the company or merge with another casino operator.

Reeg, Eldorado’s former chief financial officer, took over as CEO in January from Gary Carano, the company’s title executive chairman. Carano – son of the late Eldorado founder Don Carano – held several senior management positions with the company since 1980.

Icahn and Eldorado have a history. Tropicana Entertainment had been owned by Ichan before it was acquired by Eldorado and GLPI.

Wall Street was relatively quiet on the reports. Shares of the companies were up in trading Friday. Caesars closed on the Nasdaq at $9.48, up 35 cents or 3.83 percent. Eldorado closed on he New York Stock Exchange at $52.06, up $2.28 or 4.58 percent.

On May 28, Deutsche Bank gaming analyst Carlo Santarelli the likelihood of an Eldorado-Caesars pairing had increased and told investors in a research note deal would be a “net positive for Eldorado, Caesars and the gaming group more broadly, given the valuation implication and broader halo of (a) busy merger and acquisition environment.”

Santarelli suggested in the report that Eldorado “could seek to reduce its acquired Strip exposure, and financial leverage, by selling assets, into what we think is a healthy appetite for Las Vegas Strip properties.”

Some of the hang-ups to any deal include federal anti-trust issues over ownership of casinos in the smaller regional markets and Caesars’ overall debt of $18.5 billion. Eldorado has $3.5 billion in net debt.

Other suitors have been involved in the discussions for Caesars, including Houston billionaire Tilman Fertitta, whose privately held Landry’s operates the Golden Nugget casino chain, and Las Vegas-based Boyd Gaming Corp.

Some gaming analysts have suggested a deal for Caesars could involve several companies in order to avoid anti-trust concerns.

Santarelli suggested a $10.50 acquisition price per share in his May 28 research note.

“From an analytical perspective, we think the premium to Caesars holders could be limited on face value, as we assume an acquisition price of $10.50,” Santarelli wrote, “though we believe the equity component in Eldorado would make for a more than satisfying return for the Caesars stakeholder.”

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.