Eldorado Sheds Two More Properties
Eldorado Resorts last week sold off two more casinos, adding to the five they’ve recently sold, as the company prepares to take over Caesars Entertainment in a $17 billion deal. Rhode Island’s Twin Rivers was the buyer, and plans to substantially alter the Isle of Capri property in Kansas City (l.). Meanwhile, Caesars appears to have the backing of the shareholders, as they voted to return all eight of the 11 directors up for re-election, including, significantly, Carl Icahn’s four appointees.
It’s been widely reported that once the $17 billion merger between Caesars Entertainment and Eldorado Resorts is finalized, many of the Caesars casinos will be on the market, including some Strip properties. But until then Eldorado is the seller. Last week the company shed two more properties to Twin River Worldwide Holdings, the Isle of Capri in Kansas City and Lady Luck Casino in Vicksburg, Mississippi, in a deal worth $230 million. Twin River owns two casinos in Rhode Island, Dover Downs Casino Hotel in Delaware, the Hard Rock Casino Hotel in Biloxi, Mississippi, and three small Colorado casinos.
For Eldorado, it continues a pattern of sales that began even before the Caesars deal was announced. The company previously announced the sale of three casinos to Century Casinos and the VICI REIT: Mountaineer Casino Racetrack and Resort in New Cumberland, WV; Isle Casino Cape Girardeau in Cape Girardeau, MO and Lady Luck Casino Caruthersville in Caruthersville, MO in an all cash deal valued at $385 million. The deals are expected to ease the regulatory hurdles that the Caesars deal may encounter, as well as adding significant money to complete the purchase.
Twin Rivers sees last week’s purchases as attractive to the company.
“Isle Kansas City and Lady Luck Vicksburg expand our geographic footprint with assets in attractive markets. We believe these assets are a great fit for our portfolio and see the opportunity to increase the net cash flow from these properties by our redevelopment and operating plans. In particular, in Kansas City, where the property lies within an area near downtown that has been targeted by local officials for development, we feel there is opportunity for capital investment in the property which we believe will have a transformative impact and integrate well with local development efforts in the area,” Twin River President and CEO George Papanier said in a statement.
Meanwhile, shareholders of Caesars Entertainment appear to have endorsed the Las Vegas-based gaming giant’s $17.3 billion merger with Eldorado Resorts by returning all eight members of the board of directors whose seats were up for re-election.
The vote, reported in a filing with the U.S. Securities and Exchange Commission, applied to eight of the 11 directors and includes three of the four directors corporate raider Carl Icahn installed after he amassed a controlling 28 percent of Caesars over the last several months and began pushing for a sale or merger to boost the value of the company’s perennially underperforming stock.
The eight, who will serve through the 2020 annual meeting, are: James Hunt, currently the chairman, John Dionne, Richard Schifter, Thomas Benninger, Juliana Chugg, Keith Cozza, Courtney Mather and Tony Rodio.
Cozza is CEO of Icahn Enterprises. Mather is managing director of Icahn Capital. Rodio, who was CEO of Tropicana Entertainment before Icahn sold it to Eldorado last year, took over as Caesars CEO in April.
Three members did not have to stand for re-election: Denise Clark and Don Kornstein and Icahn appointee James Nelson, a member of Icahn Enterprises’ board.
Rodio is expected to remain in place until the merger is completed sometime next year, pending an OK from the Federal Trade Commission and the approval of gaming regulators in 16 states.
On paper the merger will create the largest casino company in the world. Eldorado owns and operates 26 casinos in 12 U.S. states. Caesars’ gaming portfolio is comprised of 36 casinos and racinos owned or operated in 13 states, plus a racetrack in Kentucky. The company also owns or manages 13 casinos in Canada, Great Britain, Egypt and South Africa. The company also is pursuing a license for a megaresort in Japan, although Eldorado has said it likely will bring that to a halt.
Eldorado CEO Thomas Reeg, who will oversee the combined company, has said some regional properties will be sold to avoid federal antitrust issues.
“We’ll let the FTC tell us where they might have too much exposure,” said Union Gaming analyst John DeCree. “It’s not, in our view, going to be an impediment or roadblock to getting the deal closed.”
Reeg said he also expects to sell one or two of Caesars’ nine Las Vegas casinos, eight of which are on the Strip, prompting lots of speculation among observers and analysts about what will be sold and to whom.
Tilman Fertitta, the owner of restaurant giant Landry’s who tried to pull off a merger last year between Caesars and his Golden Nugget casino group, has been mentioned as a potential buyer, as has billionaire entrepreneur Phil Ruffin, who owns the TI on the Strip.
But as analysts point out, given the opportunity to buy a cash-generating Strip presence for a fraction of what it would cost to build one, there is likely to be no shortage of bidders.
It appears a virtual certainty, too, that at least one Strip resort will go, along with some regional assets, as Eldorado works to make the deal pencil out.
Eldorado is paying $7.2 billion in cash along with approximately 77 million shares and assuming roughly $8.8 billion of Caesars debt. It works out to $12.75 a share, a sizable premium over the $9 or so the stock has averaged over the last year and considerably above the $10.50 Eldorado reportedly offered initially.
Needless to say, for a company with a market value of around $4 billion and a little more than $3 billion of long-term debt it’s an expensive proposition. Eldorado management says there are some $500 million worth of synergies to be realized, but analysts are skeptical of that number.
On the labor front, what happens next is a matter of considerable concern among employees fearful of losing jobs and benefits.
As D Taylor, president of hospitality workers union UNITE HERE International, put it recently, “Where are they going to cut?”
A job action is already looming at Isle Casino Pompano Beach in South Florida, which Eldorado took over with its 2017 acquisition of regional operator Isle of Capri Casinos and shortly after laid off more than 80 union employees, about one-fifth of the property’s union workforce.
Earlier this month, 93 percent of Isle Pompano’s union employees voted to approve a strike if leadership calls for one.
“Employee frustration and dissatisfaction with the company’s constant reductions to staff levels and amenities for guests led to Saturday’s vote,” according to a statement from UNITE HERE Local 335.
Taylor, meanwhile, has vowed, “We will not stand by idly if the proposed Caesars-Eldorado transaction will lead to significant job losses, worse wages and benefits for our members, and lower state gaming tax receipts in the many communities where members we represent work and live.”