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Eldorado’s $17.3B deal for Caesars could create largest casino company

Updated June 24, 2019 - 11:12 pm

A $17.3 billion megadeal is slated to create the largest casino company in the world by gaming assets.

Eldorado Resorts’ acquisition of larger Caesars Entertainment Corp., announced Monday, would form an industry giant with 60 domestic casino-resorts and gaming facilities across 16 states, excluding Nevada. The companies said the buyout would close next year.

The merged company would retain the better-known Caesars name and control more than 51,000 hotel rooms, around 4 million square feet of casino space, 71,000 slot machines, 4,000 table games and 300 food and beverage outlets.

The deal is expected to bring major changes to the Strip, where the merged company may try to sell properties, and the deal is expected to raise questions about sports betting, regulatory issues and the company’s possible future in Japan.

In Nevada, it’s possible the Strip could become divided among more operators.

Eldorado, a fast-growing regional casino operator whose lone Southern Nevada property had been the Tropicana Laughlin, is now positioned to take over several Caesars’ Strip properties.

“This is a very big deal because it will establish Eldorado’s presence in Las Vegas,” said Jennifer Roberts, associate director of the International Center for Gaming Regulation.

In Las Vegas, Caesars operates Caesars Palace, Harrah’s, the Flamingo, Bally’s, The Linq Hotel, The Cromwell, Paris Las Vegas, Planet Hollywood Resort and the Rio.

But how much of a Las Vegas presence is necessary?

Probably less than there is now, Eldorado CEO Thomas Reeg said in a conference call Monday.

“I think that there’s more Strip exposure than we would need to accomplish our goals with our regional database,” Reeg said. “So I would expect that we would be a seller of a Strip asset, but that decision has not been made.”

Reeg did not name any specific property that could go up for sale.

“The only property I would think is absolutely safe is Caesars itself,” said analyst Chris Grove, managing director of California-based Eilers & Krejcik Gaming. “I’d also be surprised if the Linq was put on the block. Outside of those two, it would not shock me to hear any and all of Las Vegas’ Caesars properties mentioned as potential targets for divestiture.”

Roberts also said she wouldn’t be surprised if there is restructuring and selling of some properties.

One of the most valuable assets in the transaction will be access by Eldorado to Caesars Rewards customers, the company’s loyalty card database. That could result in additional visitation for Las Vegas when current Eldorado customers move over to Caesars Rewards and have opportunities to find deals and discounts in Las Vegas.

Sports betting

The deal also may mean some “tricky questions” for the company in terms of sports betting, Grove said.

Reeg called sports betting in the combined company “the best” opportunity out there.

“Caesars has a plethora of sports partnerships, including league partnerships, team partnerships and ESPN,” he said. “We’ve seen them all fitting together.”

But it may be more difficult to get all the different partners, who are direct competitors, operating smoothly together, said Grove.

Several of Eldorado’s 26 properties in 12 states already operate sportsbooks, and many of Caesars’ venues also take sports bets, but they use different sportsbook operators.

“Eldorado already has deals in place with William Hill and the Stars Group, while Caesars brings an existing deal with DraftKings to the table,” Grove said. “Who gets priority? Who gets priority in certain markets? Who gets priority in retail versus online?”

The two companies have also demonstrated divergent attitudes toward online gaming, he said. While Caesars had made significant investments into the World Series of Poker online, WSOP.com, and online casinos in New Jersey and Pennsylvania, Eldorado has not made significant investments into online gaming.

“It’s easy to say, ‘We’re going to take advantage of every opportunity presented to us.’ But frankly, you have a company that has seemed to not have much faith in online gaming, and it’s hard to appreciate how that lack of faith is going to impact that combined company,” Grove said.

Still, the company is poised to be a “major force in regulated sports betting.”

Roberts agreed.

“For a company historically operating in smaller markets and now taking on new locations and the Caesars global brand as well as partnerships with the NFL and other significant alliances, this opens up a new presence for them in the gaming industry,” she said.

Regulatory issues

Both boards of directors have approved the deal, which now must be approved by shareholders of the two companies and by various regulatory bodies across the nation, including the Nevada Gaming Commission. The state Gaming Control Board, which will review the deal, has no timetable yet when the transaction would be placed on its calendar.

Because the merger would create an industry behemoth, there are “a lot of considerations that need to be looked at” for the deal to close, said former state Gaming Control Board Chairwoman Becky Harris.

Any antitrust issues would have to be signed off on at the federal level before the state could give the deal a green light, she said.

The Gaming Commission would scrutinize possible antitrust issues as well.

“The state has an interest in making sure that a monopoly is not unwittingly created,” Harris said, adding that a monopoly would have an outsized impact on other things like hotel room rates, entertainment and gaming.

Japan

Expanded international opportunities may be limited.

Caesars operates one property in South Africa and eight properties in England. It manages three properties in Egypt and one property in Canada, and soon it will manage a property in Dubai.

Caesars had been expected to vie for concessions to build two or three integrated resorts in Japan, in tight competition with other Las Vegas-based companies.

But on Monday, Reeg suggested that the merger could spell the end of Caesars’ bid to enter the Japanese market.

“The opportunity internationally is going to have to be, frankly, stupendous for us to be running in that direction. But no firm decisions have been made at this point,” he said.

Grove said it would make sense for the company to keep its focus on its “heart and soul,” which is the U.S. market, and not be distracted from that unless there is a tremendous opportunity with a clear path of success.

Japan is a “hotly contested market with a lot of very credible players,” he said.

Japanese governmental authorities have yet to conclude the process to bid for licensing.

Carl Icahn

The deal is a result of Carl Icahn’s prowess.

In February, the billionaire hedge fund activist confirmed that he had built up a nearly 10 percent stake in Caesars Entertainment Corp. In SEC documents, Icahn stated at the time that he was seeking board representation and encouraged the company to be sold.

By March, SEC documents show, he had increased his stake to 17.75 percent, becoming the largest shareholder.

Icahn negotiated with the company to appoint Icahn Enterprises CEO Keith Cozza, Icahn Enterprises board member James Nelson and Icahn Capital fund manager Courtney Mather to the 12-member board of directors, and he had considerable influence in selecting Tony Rodio as Caesars’ new CEO.

Icahn said Monday in a statement, “This merger is the quintessential example of how an activist shareholder, working collaboratively with the board, can greatly enhance value for all stockholders. … As a combined company, Caesars and Eldorado will be America’s pre-eminent gaming company. It is rare that you see a merger where, because of the great synergies, ‘one plus one equals five.’ I look forward to seeing our investment prosper.”

Shares of Caesars closed up 15.51 percent, or $1.45, Monday to $11.44. Shares of Eldorado Resorts closed down 10.64 percent, or $5.45, to $45.77.

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

A previous version of this incorrectly reported the number of states in which the merged company would have casino-resorts and gaming facilities.

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