Merger Creates the Largest Owner and Operator of U.S. Gaming Assets
Eldorado Resorts, Inc. (NASDAQ: ERI) and Caesars Entertainment Corporation (NASDAQ: CZR) announced that they have entered into a definitive merger agreement to create the largest U.S. gaming company. The proposed transaction will combine two leading gaming companies with complementary national operating platforms, strong brands, strategic industry alliances, and a collective commitment to enhancing guest service and shareholder value. The combined company will provide its guests with access to approximately 60 domestic casino–resorts and gaming facilities across 16 states. The transaction is transformational for each company’s shareholders, employees and customers, combining Eldorado’s operational expertise with Caesars industry-leading loyalty program, regional network and Las Vegas assets.
Summary of Caesars Transaction
Eldorado will acquire all of the outstanding shares of Caesars for a total value of $12.75 per share, consisting of $8.40 per share in cash consideration and 0.0899 shares of Eldorado common stock for each Caesars share of common stock based on Eldorado’s 30-calendar day volume weighted average price per share as of May 23, 2019, reflecting total consideration of approximately $17.3 billion, comprised of $7.2 billion in cash, approximately 77 million Eldorado common shares and the assumption of Caesars outstanding net debt (excluding face value of the existing convertible note). Caesars shareholders will be offered a consideration election mechanism that is subject to proration pursuant to the definitive merger agreement. Giving effect to the transaction, Eldorado and Caesars shareholders will hold approximately 51% and 49% of the combined company’s outstanding shares, respectively.
Upon completion of the transaction the combined company will retain the Caesars name to capitalize on the value of the iconic global brand and its legacy of leadership in the global gaming industry. The new company will continue to trade on the Nasdaq Global Select Market.
Strategic Rationale of Caesars Combination
- Largest and Most Diversified Domestic Footprint and Scale: Unrivaled domestic footprint of approximately 60 owned, operated and managed casino–resorts across 16 states, creating nation’s preeminent diversified gaming and entertainment company
- Best-in-Class Leadership: Eldorado’s proven decentralized operating model combined with its history of completing successful, value-building transactions through effective financial management to drive improved margins and create value for both shareholders and guests
- Iconic Brands and New Gaming Opportunities Will Enhance Customer Experience: Combines iconic global brands and industry-leading Caesars Rewards loyalty program with proven guest service focus to drive value across the expanded regional network, including access to attractive properties in Las Vegas and other gaming markets around the country
- Completion of Las Vegas Strip Room Remodels in 2021: Caesars Las Vegas asset portfolio has recently undergone $1.2 billion of enhancements and room remodels that positions the portfolio for improved operating performance in the near-term
- Significant Identified Synergies: Eldorado management has a demonstrated track record of successfully integrating acquired companies and achieving stated synergy targets and expects to achieve approximately $500 million of synergies in the first year following closing. Additionally, Eldorado sees long-term cost and revenue synergy upside opportunities
Summary of $3.2 Billion Strategic Transaction with VICI
VICI Properties, Inc. (NYSE: VICI) (“VICI”) and Eldorado have entered into a master transaction agreement in connection with the acquisition of the real estate of three assets and amendment of existing leases and right of first refusals. Furthermore, in connection with the transaction, the parties have agreed to the following:
- VICI will acquire the real estate associated with Harrah’s Resort Atlantic City, Harrah’s Laughlin Hotel & Casino, and Harrah’s New Orleans Hotel & Casino for approximately $1.8 billion. The properties will be added to an existing master lease and will have an initial annual rent of approximately $154 million. The proceeds from this transaction represent a rent multiple of 11.75x;
- An amendment to the terms of the existing CPLV and HLV single asset leases, following closing of the transaction, which will result in a combination of these existing leases into a new Las Vegas master lease and an increase in the annual rent payment on the Las Vegas master lease of $98.5 million, resulting in proceeds of approximately $1.4 billion. The proceeds represent a rent multiple of 14.25x;
- A put/call option on Caesars Centaur assets at a 12.5x put rent multiple / 13.0x call rent multiple, exercisable between January 2022 and December 2024; and,
- VICI granted right of first refusals for whole asset sale or sale-leaseback transactions on two Las Vegas Strip properties and Horseshoe Casino Baltimore
Optimized Lease Structure and Balance Sheet
- Win-Win Transaction with VICI: Strategic transaction with VICI encompassing amendments to existing leases and acquisition of the real estate of three properties generates $3.2 billion of gross proceeds to immediately strengthen the combined company’s balance sheet, while providing growth for VICI
- Attractive Financial Profile: Materially enhanced financial scale and flexibility with additional growth and stability driven by the world’s largest gaming customer database
- Commitment to a Strong Balance Sheet: Transaction expected to be immediately accretive to free cash flow with significant cash flows from the combined company to be allocated to leverage reduction
Tom Reeg, Chief Executive Officer of Eldorado, commented, “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. 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.
“As with our past transactions, we have a detailed plan for significant synergy realization. Relative to our prior acquisitions, the combination with Caesars presents attractive incremental revenue synergy opportunities as we plan to strengthen Caesars Rewards, the industry’s leading player loyalty and CMS database, and combine it with Eldorado’s to market to over 65 million rewards customers nationally. Additionally, the transaction bears benefits beyond the strategic merits of the combination with Caesars in isolation. Our agreement with VICI favorably positions both platforms by enhancing the value of our combined company’s assets and further solidifies the growth profile of VICI.
“Eldorado’s history of completing successful, value-enhancing transactions has focused on prioritizing operating discipline with the goal of delivering best-in-class gaming and entertainment experiences and amenities to customers, unlocking the long-term value of acquired companies and assets through effective financial management, and completing return-focused investments in our properties that elevate the guest experience as well as our competitive position and overall returns. We intend to allocate the significant free cash flow from the combined company to reduce leverage while investing to improve the customer experience across the platform. We could not be more excited about the future as we bring together two industry leaders that will generate significant opportunities for our employees, customers, partners and shareholders.”
Jim Hunt, Chairman of Caesars, said, “This announcement is the culmination of a thorough evaluation by the Caesars Board of Directors. 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.”
Tony Rodio, Chief Executive Officer of Caesars, added, “We believe this combination will build on the accomplishments and best-in-class operating practices of both companies. I’m familiar with Eldorado and its management team, having worked with them on a previous transaction, and I look forward to collaborating with them to bring our companies together. We are excited to integrate Caesars Rewards with the combined portfolio. The incorporation of Caesars Rewards has produced strong results at the recently acquired Centaur properties. By joining forces, we believe the new Caesars will be well-positioned to compete in our dynamic industry.”
Ed Pitoniak, Chief Executive Officer of VICI, said, “VICI is honored and excited to be integrally involved with Eldorado in this transformative transaction. 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.”
Governance and Timing
- The combined company’s Board of Directors will consist of 11 members, six of whom will come from Eldorado’s Board of Directors and five of whom will come from Caesars Board of Directors
- The transactions have been unanimously approved by the Boards of Directors of Eldorado, Caesars and VICI. The Caesars transaction is subject to approval of the stockholders of Eldorado and Caesars, the approval of applicable gaming authorities, the expiration of the applicable Hart-Scott-Rodino waiting period and other customary closing conditions, and is expected to be consummated in the first half of 2020
J.P. Morgan, Credit Suisse and Macquarie Capital are serving as financial advisors to Eldorado. Milbank LLP and Latham & Watkins LLP are serving as Eldorado’s legal counsel. PJT Partners LP is serving as financial advisor to Caesars. Skadden, Arps, Slate, Meagher & Flom LLP is serving as Caesars legal counsel.