Posted on: July 8, 2020, 02:04h.
Last updated on: July 8, 2020, 02:29h.
The Nevada Gaming Control Board (NGCB) on Wednesday approved Eldorado Resorts Inc.’s (NASDAQ:ERI) $17.3 billion acquisition of Caesars Entertainment (NASDAQ:CZR). That marks the latest in a series of regulatory hurdles cleared by the regional operator in its quest to form the largest US gaming entity.
The Federal Trade Commission (FTC) gave the green light to the deal late last month, prompting chatter that the proposed takeover would sail through the Nevada regulatory process. In large gaming consolidation, it’s common for the major states involved in the industry, namely Nevada and New Jersey, to wait on the FTC to have its say on a deal. The Nevada Gaming Commission (NGC) is slated to weigh in on the transaction later today, with regulators in New Jersey scheduled to do so on July 15.
Acquiring Caesars amounts to a crown jewel for Eldorado – one that marks the latest in a series of deals transforming Reno-based ERI from overlooked regional outfit to a US gaming behemoth.
In its current form, ERI was born out of a slew of consolidation, starting with the 2014 purchase of MTR Gaming. That transaction paved the way for Eldorado to become a publicly traded company. With the 2017 and 2018 buys of Isle Gaming and Tropicana, ERI added 22 casinos.
Gary Carano, executive director of ERI’s board of directors, told members of the NGCB that in 2018, the company approached Caesars regarding a potential marriage. But the Caesars Palace operator rebuffed that overture.
$500 Million: the Magic Number
Since announcing the deal in June 2019, ERI management, led by CEO Tom Reeg, frequently mentioned the goal of realizing $500 million in cost savings by combining the two companies – a figure some analysts see the new entity not only meeting, but exceeding.
Reeg told NGCB members one avenue for cost cuts will be buffets, which are coming under increased scrutiny at gaming venues across the country because of the coronavirus pandemic. The executive says that amenity costs properties $3 million apiece annually, and it’s unlikely the company will reinstate that offering outside of Las Vegas. He added that roughly 1,000 staffers, most of whom occupy corporate roles in Las Vegas, will lose their jobs as a result of the acquisition.
Trimming costs will be essential in placating skittish investors concerned about the debt of the combined entity. In buying Caesars, Eldorado is agreeing to take on $8.8 billion in liabilities in the acquired firm.
That, coupled with ERI’s previously existing debt and a recent round of bond sales, means the new company will have $14 billion in combined obligations – more than their combined equity market capitalization of nearly $11.70 billion.
Not Letting COVID-19 Get in the Way
At the height of the first wave of coroanvirus cases, shares of both Caesars and ERI plunged as investors fretted over turbulence in the high-yield bond market, fretting that the deal may not make it to the finish line in a recession. Reeg acknowledged the pandemic was taken into consideration when weighing the benefits of the deal.
We started to look to ‘does this merger still make sense for us?’,” said Reeg. “We had done a great of planning for integration by the time COVID hit. We had a great look into Caesars beyond what you get in your typical due diligence for a transaction.”
Reeg said it became clear his company and Caesars were better off together than flying solo. He added that group bookings on the Las Vegas Strip are shaping up well for September, and that the largest US gaming center should rebound in the fourth quarter.
Eldorado CFO Bret Yunker told NGCB members that the company plans to sell a Strip asset and two properties in Indiana when the deal is finalized. The Indiana Horse Racing Commission (IHRC) is already expressing concern about ERI’s previously revealed arrangement to sell Hoosier Park and Indiana Grand to VICI Properties (NYSE:VICI). Under the terms of that agreement, it would be January 2022, at the earliest, before those race tracks are sold.