Caesars Entertainment Corp. has been swept up in takeover speculation since the company’s share price tumbled last year amid disappointing earnings and concerns over a recession.
Outgoing CEO Mark Frissora told Wall Street analysts on Aug. 1 that Caesars would miss its third-quarter forecasts due to fewer events in Las Vegas, causing the share price to crater by as much as a quarter to $8.65 that day. Frissora later cut the company’s full-year revenue expectations.
The share price took another hit in the fourth quarter over fears that rising U.S. interest rates would push the national economy into a recession, hurting highly indebted companies like Caesars.
The company’s share price tumbled to a multi-year low of $5.84 in December, valuing the largest casino operator in the U.S. by properties at just $4 billion, making it a ripe takeover target by competitors and private equity funds.
Amid the decline, hedge funds scooped up shares, billionaire Tilman Fertitta made a bid and Frissora announced he would step down when his contract ended in February. The company later pushed his departure back to the end of April as it struggled to find a replacement.
“Mark was positioned to sit in there for the long haul, but Caesars’ cheap valuation and stock volatility upset shareholders, so there was a call for a CEO change,” said John DeCree, an analyst at Union Gaming.
Shares of Caesars trade at 9 times this year’s forecasted operating cash flow excluding rent payments, a 17 percent discount to its largest competitor MGM Resorts International, according to DeCree. The share price has ranged from $13.54 to $5.84 over the past year and is now $9.52.
Frissora’s relationship with Caesars investors had also been hampered by his troubled legacy at Hertz. The auto rental company is demanding Frissora return compensation for his role in an accounting scandal five years ago that sent its share price into free fall.
Billionaire activist investor Carl Icahn began buying shares of Caesars as early as January. Icahn acquired nearly 18 percent by mid-March, giving him three board seats and say over who would replace Frissora.
Icahn has made money on his previous ventures into the gaming industry, including the Stratosphere and Fontainebleau. He has called for selling Caesars. However, Icahn held his other gaming investments for years before cashing out.