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Could Eldorado Resorts possibly acquire the larger Caesars Entertainment?

It isn’t often that David takes Goliath, but that’s a possible scenario on the Strip with Reno-based Eldorado Resorts Inc.’s prospect of acquiring Caesars Entertainment Corp.

Analysts say Caesars could go for an estimated $7.4 billion, based on the proposed share price and the number of shares outstanding.

The possibility of such a deal has been swirling around ever since corporate raider Carl Icahn acquired about 18 percent of the company’s stock and holds enough influence on its board of directors to call the shots.

His calls for the company to sell ratcheted up again this week with reports that a sale could occur by the end of the month — or that it could be completely trashed if the financing doesn’t hold up.

Analysts are envisioning a cash and stock deal of around $11 a share. Icahn reportedly rejected an offer of $10.50 a share as too low.

If a deal comes about, it could dramatically alter the Strip landscape.

Eldorado, founded by Reno’s Carano family and now under the direction of CEO Thomas Reeg, has long coveted a spot on the Strip. Last year, it completed the acquisition of Tropicana Entertainment and entered the Southern Nevada market with the Tropicana Laughlin. (It isn’t the same company that owns the Tropicana on the Strip.)

Acquiring Caesars could get Eldorado the Strip address it wants. But would it keep the flagship Caesars Palace or sell it, a suggestion offered by Las Vegas-based analyst John DeCree of Union Gaming? Certainly Caesars Palace would generate a tidy sum that could go a long way toward Eldorado’s investment goals.

Eldorado could continue to hold other Las Vegas assets, and keep Caesars Entertainment’s strong Caesars Rewards database.

Caesars investors could finally escape the company’s lengthy history of undervalued share prices and the bitter taste of the company’s two-year trip to bankruptcy court.

In a report to investors, J.P. Morgan analyst Daniel Politzer suggested that the merged Eldorado-Caesars company could function with the efficiencies Eldorado has used while becoming the nation’s third-largest regional gaming company with 26 casino operations in 12 states.

Politzer envisions Eldorado realizing $500 million in synergies being achieved by using the size of the pro forma entity to optimize a Las Vegas-centric hub-and-spoke business structure, with the hub getting smaller (selling some of Caesars’ Las Vegas Strip assets) and putting in more spokes — new regional properties.

“Under this scenario, we could see the combined company having three to five Strip assets, vs. nine currently, that would span customer segments (luxury via Caesars Palace, one or two mid-tier properties, and maybe one or two economy properties),” Politzer wrote.

If that happens, what would the new company give up? The Caesars universe in Las Vegas includes Caesars Palace, The Linq Hotel, The Cromwell, Bally’s, Paris Las Vegas, Harrah’s, Planet Hollywood Resort, Flamingo and the Rio, long rumored to eventually be booted from the company.

Who would be the suitors? Tilman Fertitta has flirted with attempting his own bid for Caesars. Phil Ruffin, who has carved a nice Strip niche with TI, could be interested. Would Boyd Gaming attempt to make a Strip comeback after closing and demolishing the Stardust in 2006 and jettisoning its Echelon dream by selling the land to Genting Holdings, which is now building Resorts World Las Vegas there?

An Eldorado-Caesars deal would present some additional regulatory roadblocks, with likely divestitures necessary in Atlantic City, New Jersey, where a merged company would control 41 percent of gross gaming revenue; Missouri, about a 33 percent share; Iowa (27 percent); and possibly Illinois (30 percent). There’s also slight overlap in Reno-Lake Tahoe and in Laughlin.

Analyst Barry Jonas of SunTrust Robinson Humphrey, Inc., is another who suspects a deal between Eldorado and Caesars could be imminent.

“I think they have a very capable management team that’s loved by the Street,” Jonas said. “They’re very effective and really able to sort of push the envelope. It challenges a lot of the normal conventions around marketing and promotions and I think if anyone’s up to the challenge, it’s Tom Reeg and Eldorado.”

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.

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