With the support of billionaire Carl Icahn, Eldorado Resorts Inc is buying Caesars Entertainment Corp for $8.6 Billion. This will make them the largest gaming operator in the U.S. They agreed on the price of $12.75 per share bought. With a mix of money and about 77 million Eldorado shares, the final price represents a premium of 28% to Caesar’s Friday closing price. If the debt is included, the value of the deal is about $17.3 billion. Only days after the signing Caesars shares rose 15% to $11.48 on wall street, Eldorado’s meanwhile, dropped 7.2%.
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Eldorado was a relatively small competitor until a few years ago when it went on a buying spree. It bought MTR Gaming, Isle of Capri Casinos, and Tropicana Entertainment to name a few. They now have 26 casinos in 12 states, which is only the beginning.
But, even with this rapid growth, Eldorado is a smaller company than Caesars. So, to sign such a deal, they will have to take on more debt to complete the buyout. The agreement is, thus, quite risky for Eldorado as it only increases leverage. In fact, shares for Eldorado are now in the single digits when the Caesars buy was unveiled. It makes sense from the investors’ point of view as Eldorado is in a dangerous place. If anything even a bit destabilizing happens in the gaming industry, it could end in disaster for Eldorado.
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Both Eldorado and Caesars have stated that they see a very bright future with this deal. Profits will rise, and cash flow will do the same. Tom Reeg Eldorado’s CEO said this in an interview: “We intend to allocate the significant free cash flow from the combined company to reduce leverage while investing in improving the customer experience across the platform.”
Car Icahn also had good things to say: “While I criticized the Caesars Board when I took a major position several months ago, I would now like to do something that I rarely do, which is to praise a board of directors for acting and in negotiating and approving this transformational transaction.”