Caesars Entertainment Corp. (CZR) and Eldorado Resorts (ERI) are teaming up to increase their odds of competing successfully in the gaming industry, and the market is hailing the move, at least for Caesars.
Shares of Caesars gained nearly 17% in early pre-market trading on word of its planned acquisition by Eldorado before tempering gains. Meanwhile, shares of Eldorado were around 6% in premarket trading Monday.
"This announcement is the culmination of a thorough evaluation by the Caesars Board of Directors," Caesars chairman Jim Hunt said. "The Board unanimously concluded that the combination of these two companies creating an even stronger entity is a decision for our shareholders' consideration and vote for immediate and ongoing value."
The deal was backed firmly by activist investor Carl Icahn, who holds a substantial stake in Caesars and had been fighting to achieve a more amicable price for the entity after an initial takeover price was noted as "underwhelming" by Caesars' board.
"This merger is the quintessential example of how an activist shareholder, working collaboratively with the Board, can greatly enhance value for all stockholders," Icahn said in a statement on Monday morning. "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 responsibly and decisively in negotiating and approving this transformational transaction."
Fellow activist investors HG Vora, Canyon Capital Partners, Soros Fund Management, Appaloosa LP and DE Shaw were noted as vocal proponents of a deal to restructure or sell Caesars per FactSet campaign data. None of the activist investors have indicated their next move following the stock surge as of yet.
Under the terms of the agreement, Eldorado will acquire all of shares outstanding of Caesars for $12.75 per share, which consists of $8.40 per share in cash and 0.0899 shares of Eldorado common stock for each Caesars share.
The total deal size is $17.3 billion, according to a joint press release. That figure consists of about $7.2 billion in cash, around 77 million Eldorado common shares and the assumption of Caesars net debt outstanding.
Considering Caesars held $8.85 billion in long-term debt as of June 21 and only emerged from bankruptcy in 2017, the assumption of the liabilities is no small matter. The deal is justified by Eldorado in that it will combine the company's operational abilities with "Caesars industry-leading loyalty program, regional network and Las Vegas assets."
Following closure, Eldorado will control 51% of the company while Caesars will hold the lesser 49%. Still, the new entity will retain the Caesars name.
"Eldorado's combination with Caesars will create the largest owner and operator of U.S. gaming assets and is a strategically, financially and operationally compelling opportunity that brings immediate and long-term value to stakeholders of both companies," Eldorado CEO Tom Heeg said in a statement following the announcement. "Together, we will have an extremely powerful suite of iconic gaming and entertainment brands, as well as valuable strategic alliances with industry leaders in sports betting and online gaming. The combined entity will serve customers in essentially every major U.S. gaming market and will marry best-of-breed practices from both entities to ensure high levels of customer satisfaction and significant shareholder returns."
Added to the deal, VICI properties (VICI) , a REIT, will acquire the real estate assets of the Caesars-owned Harrah's Resort Atlantic City, Harrah's Laughlin Hotel & Casino, and Harrah's New Orleans Hotel & Casino for approximately $1.8 billion.
"VICI is honored and excited to be integrally involved with Eldorado in this transformative transaction," VICI CEO Ed Pitonak said. "As a REIT, we seek to partner with operators who have the most powerful, valuable and enduring relationships with the end users of our real estate. Under Tom Reeg's leadership and front-line focus, the combination of Eldorado and Caesars will yield the most compelling guest experiences and network effect in American gaming."
A conference call explaining the deal's many moving parts is expected to kick off at 8:15 a.m. ET and will be available here.