Eldorado Resorts Inc.’s (NASDAQ:ERI) $17.3 billion pursuit of Caesars Entertainment (NASDAQ:CZR) is hitting major regulatory headwinds, but not because states are opposed to the deal.
Rather, gaming authorities in some states – including the big kahunas Nevada and New Jersey – are postponing regularly scheduled meetings due to the coronavirus outbreak. The Nevada Gaming Control Board (NGCB) and the New Jersey Division of Gaming Enforcement (NJDGE) were slated to evaluate the transaction, which would create the largest domestic gaming company, over the next several weeks. With much of the US essentially shutdown because of COVID-19, agencies are pushing back time frames for considering ERI’s takeover of Caesars.
There are much more important things happening in our country and industry,” said NGCB Chairman Tony Alamo in an interview with the New York Post.
NGCB’s web site indicates the agency held a meeting on March 19 and another consultation is scheduled for April 8. In the Garden State, it was expected the deal was going to be considered in mid-April, but now it appears as though the earliest the NJDGE will make a recommendation is early May. After that agency’s decision, the transaction would move onto the Casino Control Commission (CCC), which isn’t slated to get together again until May 13.
Time Isn’t on ERI’s Side
When Reno-based Eldorado unveiled the $17.3 billion offer for Caesars last June, it was expected that the companies would need 18 states to sign off on the deal. Thus far, more than a third have signed off, including Illinois, Iowa, Louisiana, Maryland and Pennsylvania, among others.
However, ERI desperately needs the process to be expedited because, as was reported earlier this week, with the deal not being finalized after a nine-month deadline, the acquirer is doling out a daily “ticking fee” of $2.3 million to the Caesars Palace operator.
After news of ERI’s offer for Caesars emerged last year, analysts widely speculated that asset sales in certain markets would be necessary to allay regulators’ concerns regarding concentration risk. With recent sales by both operators in Northern Nevada and ERI not having a footprint on the Las Vegas Strip, it was expected Silver State regulators would green light the takeover.
New Jersey, however, is seen as a wildcard because the combined ERI/Caesars would own four of the nine Atlantic City Boardwalk casinos. That’s obvious over-concentration in already saturated market.
Previously, rumors circulated about the fate of Caesars’ under-performing Bally’s on the Boardwalk. Now, consensus appears to be that Eldorado won’t shutter or sell a Garden State property for at least two reasons. First, layoffs stemming from a closure would irk regulators. Second, New Jersey is a booming sports betting market.
ERI likely can’t afford to have the deal scrapped due to regulatory issues. If that happens, the company would owe Caesars a breakup fee of almost $837 million, or more than 80 percent of its current market capitalization.
The investment community will likely focus on when Nevada and New Jersey will get around to determining the fate of the ERI/Caesars marriage, but in the meantime, Indiana presents some risk to the deal, too.
On Friday, reports surfaced that it’s not immediately clear when the Indiana Horse Racing Commission (IHRC) will next get together to consider the transaction because a March 19 meeting was postponed due to the coronavirus.
The IHRC also reportedly voiced concerns that ERI lacks substantial experience in operating racinos – combined casinos and racetracks – of which it would acquire two in purchasing Caesars. Those venues are Hoosier Park and Indiana Grand.
ERI does have experience with racinos, having previously owned Presque Isle Downs & Casino in Pennsylvania and the Mountaineer Casino, Racetrack & Resort in Pennsylvania.
The March IHRC meeting hasn’t been rescheduled. The commission usually meets four times a year.