Caesars, Eldorado in Merger Talks—Fertitta Looms

No offer has been reported yet, but it looks as though Carl Icahn’s hand is showing. He sold Tropicana Entertainment to Eldorado last year, and reports have it that Caesars is providing the regional giant with financial information to assist with its due diligence. There were also reports that Icahn would team up with Tilman Fertitta (l.), the owner of the Golden Nuggets, whose bid to buy Caesars was rejected last year.

Caesars Entertainment and Eldorado Resorts are discussing a possible merger. But an old suitor could also be re-emerging.

A Reuters report, citing unnamed sources familiar with the situation, said Caesars, which is under increasing sale pressure from activist investors led by Carl Icahn, is assisting Eldorado with due diligence by providing some limited confidential financial information: an indication that talks are in an early, exploratory stage with no certainty that Eldorado will make a binding offer. Icahn now owns more than 28 percent of Caesars making him eligible to hold at least eight seats on the board of directors.

Caesars declined to comment, while Eldorado did not immediately respond to a request for comment, Reuters said.

Las Vegas-based Caesars emerged 18 months ago from a bankruptcy reorganization of its largest operating company with liabilities of around $9 billion, the legacy of a 2008 leveraged buyout of then-Harrah’s Entertainment by private equity giants TPG Capital and Apollo Global Management that buried one of the best balance sheets in gaming under nearly $30 billion of debt. The reorganization, which took more than two years to accomplish, reduced TPG and Apollo to minority shareholders and resulted in the appointment of a new chairman and CEO, while ownership of the operating unit’s casinos was spun off into a separately traded REIT controlled by its creditors.

Despite the conglomerate’s enormous size and diversity—53 properties in 14 U.S. states and five other countries—the shares of parent Caesars (NASDAQ: CZR) have never recovered.

Late last year, with CZR languishing below $9, billionaire Tilman Fertitta, owner of the Landry’s restaurant chain, offered a reverse merger with his much smaller Golden Nugget casino company that valued CZR at around $13 and would have placed Fertitta in control of the new entity. Caesars rejected it as inadequate.

The company remains attractively priced as a target. But its girth and the debt load limit the universe of potential acquirers. Like the other major Las Vegas Strip operators, it’s facing rising costs in its core market at the same time that visitation and gambling spend are stagnating and competition is increasing with the nationwide spread of sports betting. Last week, the company said it will be eliminating jobs at its Las Vegas headquarters as part of a plan to cut corporate expenses by at least $40 million annually.

Caesars was trading last week around $8.40 per share, giving it a value of $5.6 billion.

Eldorado, meanwhile (Nasdaq: ERI), is trading at upwards of $50. And Eldorado and Icahn have history.

Icahn, the corporate raider known for buying troubled companies on the cheap, slashing costs and flipping them at the right time for tidy profits, launched his pursuit of Caesars in January, buying a 5 percent stake and joining other activist investors in clamoring for a sale. He has steadily upped his holding since and is now Caesars’ largest individual shareholder with around 18 percent of the equity, three seats on the board of directors and possibly the last word on a replacement for lame-duck CEO Mark Frissora, who tendered his resignation in November.

Eldorado began life in the early 1970s as a single family-owned casino in Reno, Nev., that an aggressive acquisition strategy has turned into 26 casinos in 12 states. The company bought MTR Gaming in 2014 and Isle of Capri Casinos in 2017. Last year, the company entered the Chicagoland market with the purchase of the Grand Victoria Casino in Elgin, Ill., and shook hands with Icahn on a $1.85 billion deal to buy Icahn’s Tropicana Entertainment and transfer ownership of Tropicana’s seven casinos to Penn National Gaming’s Gaming and Leisure Properties REIT for $1.2 billion.

Eldorado’s market cap stands at $3.6 billion. It has $3.3 billion of debt.

The New York Post reported last week that Icahn has also had discussions with Fertitta about joining forces. According to the Post, Fertitta would buy some of Icahn’s shares and become a trusted partner in Caesars.