Caesars Entertainment CZR stock jumped over 15% Monday after news broke that the company agreed to merge with Eldorado Entertainment ERI.
Eldorado will pay about $8.58 billion in cash and stock to buy Caesars. Eldorado said it would pay $12.75 per share, with $8.40 being paid in cash and 0.0899 ERI shares being swapped per CZR share held. After the deal, Eldorado is set to hold 51% of the combined company, with Caesars to own the remaining 49%. This offer marked a 29% premium to CZR closing price of $9.98 on Friday. Overall, Eldorado’s offer is valued at $17.3 billion when taking into consideration Caesar’s debt.
Following the merger announcement, ERI stock fell over 13%. Eldorado, in its press release “identified synergies of $500 million.” These synergies could be part of the reason Eldorado was willing to pay the premium to merge with Caesars. After the merger, the combined company will become the largest U.S. gaming company with approximately 60 facilities across 16 states. The merger will give Reno-based Eldorado a presence in Las Vegas through operations in big-name casinos and resorts such as Caesars Palace, Rio Hotel & Casino, and Harrah’s Las Vegas. Caesars other properties will also add to Eldorado’s already established portfolio of casinos throughout the U.S.
Billionaire investor Carl Icahn, who is one of Caesars largest shareholders with around 18% equity, had been pushing to sell the company over the past few months. With the merger, Icahn got what he was looking for at a very good price considering Caesars’ earlier market value. After the merger is complete, Caesars will retain its name, hoping to capitalize on its value and global brand.
This merger is the newest in a recent string of acquisitions by Eldorado as it looks to grow its brand. Some of the recent acquisitions include the Isle of Capri Casinos for $1.7 billion in May 2017, the operating business of Tropicana Entertainment for $640 million in 2018, and the Grand Victoria Casino for $328 million in 2018.
There is pessimism surrounding the merger from an Eldorado perspective due to the massive amount of debt it is set to take on. VICI Properties VICI is also involved in the deal. The REIT company currently owns a large number of the properties that Caesars leases and operates, such as Caesars Palace in Las Vegas and Caesars Atlantic City. To help finance the deal, VICI, Caesars and Eldorado have agreed to sell Harrah's Resort Atlantic City, Harrah's Laughlin Hotel & Casino, and Harrah's New Orleans Hotel & Casino to VICI. The companies have also restructured current lease agreements between VICI and Caesars
YTD, both stocks have made significant gains. CZR is up 68% and ERI is up 22%.
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