Eldorado to become Vegas giant with Caesars deal

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The Bally's Las Vegas, a Caesars Entertainment resort casino.
The Bally's Las Vegas, a Caesars Entertainment resort casino.

Reno, Nev.-based Eldorado Resorts last week instantly went from regional casino player to veritable gaming powerhouse following the announcement that it had agreed to take over casino-hotel giant Caesars Entertainment.

"It's always unusual when an ostensibly smaller company pursues a business combination with a larger company," said Brian Egger, senior analyst for gaming and lodging at Bloomberg Intelligence.

"But while Eldorado is a smaller company and perhaps not as well known, it has been very acquisitive in recent years," Egger said. "Most notably, they acquired Isle of Capri Casinos and Tropicana Entertainment in recent years and, through those deals, have become a significant participant in the regional casino industry."

Eldorado's blockbuster deal for Caesars is its largest to date, however, worth approximately $17.3 billion, with that figure inclusive of $7.2 billion in cash, 77 million Eldorado common shares and the assumption of Caesars' outstanding net debt. The combined companies will operate under the Caesars brand and collectively span 60 domestic casino-resorts and gaming facilities across 16 states, Eldorado said, making it the nation's largest casino operator.

One of the primary reasons Caesars is so attractive to Eldorado is its stronghold in Las Vegas, where its portfolio includes Caesars Palace, Planet Hollywood, Paris Las Vegas, Harrah's Las Vegas, Bally's Las Vegas, the Linq and the Flamingo Las Vegas. Eldorado is notably absent from the gaming capital, with 26 properties across Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Mississippi, Missouri, New Jersey and Ohio as well as in three Nevada cities: Reno, Laughlin and Stateline.

Michael Pollock, managing director for Spectrum Gaming Group, said Las Vegas is one of Caesars' primary attributes for Eldorado, in addition to its brand-recognition and the strength of the Caesars Rewards loyalty program.

"Eldorado wanted a home on the Las Vegas Strip, and having a resort or, as in this case, multiple resorts in Las Vegas helps generate business across other properties," said Pollock. "Effectively, what it means is that if you're playing at one of their properties in Pennsylvania, New Jersey or Indiana, you can earn points that can be redeemed in Las Vegas, and that is extremely attractive from a player's perspective."

Once the Caesars and Eldorado loyalty programs are merged, Eldorado estimates that the combined platform will have around 65 million members.

Passing muster with the FTC

However, Alan Woinski, president of the consultancy Gaming USA Corp., said that the proposed acquisition is likely to face scrutiny when it undergoes antitrust review with the Federal Trade Commission (FTC) because of the merged group's dominance in several markets.

"They're not going to pass antitrust approval the way the companies are set up right now," Woinski said. "I would say Louisiana and Atlantic City are two markets where they might have to sell one or two properties, and there are certainly others where it wouldn't surprise me if more had to be sold, including Las Vegas. The FTC could suddenly say, 'Oh, we don't like all the concentration you have on the West Coast or in the state of Nevada.'"

While Eldorado has already announced plans to offload real estate associated with Caesars Entertainment's Harrah's Resort Atlantic City, Harrah's Laughlin Hotel & Casino and Harrah's New Orleans Hotel & Casino to Vici Properties for approximately $1.8 billion, Woinski deemed those moves relatively minor, with Eldorado likely to have to sell off whole casinos to pass FTC muster.

In a release announcing the deal with Vici (a real estate investment trust formed in 2017 as a spin-off from Caesars Entertainment), Eldorado said that the agreement also grants Vici "right of first refusals for whole asset sale or sale-leaseback transactions on two Las Vegas Strip properties and Horseshoe Casino Baltimore," suggesting that the company is mulling which Vegas resorts to sell.

According to Woinski, having a smaller footprint in Las Vegas could very likely be a priority for Eldorado.

"They may not want that much exposure on the Strip, and I wouldn't blame them," Woinski said. "That's an extremely competitive market, and they may take a close look at some of these Vegas properties and decide that some, perhaps Flamingo or Bally's, don't fit in with the rest. And they may also want that couple billion dollars to pay down debt."

Operating strengths

Meanwhile, when it comes to turning around the Caesars business, which has struggled with declining valuations and mounting debt in recent years, analysts believe that Eldorado is uniquely suited to the challenge.

"Eldorado has excelled in recent years in identifying and executing opportunities for achieving cost efficiencies," said Bloomberg Intelligence's Egger, who added that after acquiring Isle of Capri and Tropicana Entertainment, Eldorado targeted opportunities to increase their overall corporate profit margins.

"And pursuant to [the Caesars] transaction, Eldorado has targeted $500 million in combined synergies and cost savings, which is an ambitious number, certainly," Egger said.

Woinski agreed: "This is a lot to bite off for any company, especially one that several years ago was a tiny little company with a handful of casinos. But one thing Eldorado has that other companies don't is this solid track record of buying casinos and casino companies and being able to squeeze out a lot more Ebitda [earnings before interest, taxes, depreciation and amortization] than anyone else. When it comes to a Caesars acquisition, Eldorado really made the most sense."

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