With Eldorado Resorts buying Casers Entertainment Corp, the combined debt will skyrocket

Eldorado Resorts is buying Casers Entertainment Corp for about $8.58 billion that will create the largest U.S. gaming operator, as it looks to take on larger companies such as Las Vegas Sands and Wynn Resorts. The agreed equity value of $12.75 a share, a mix of cash and Eldorado stock, represents a premium of about 28% to Caesers 21^st June 2019 closing price. Including the debt, the deal is worth approximately $17.3 billion.

Eldorado Resorts is an American hotel and casino entertainment company that operates 26 properties in 12 U.S. states. They have 5 properties in Nevada, 4 in Los Angeles and 4 is Missouri. They had $2 billion in Operating Revenues in 2018, up 33% from 2017. Their stock price has appreciated around 10 times over the past 5 years, under the direction of Tom Reeg, their CEO. The company in recent years has acquired MTR gaming group, Isle of Capri Casinos($1.7bn) and Tropicana Entertainment ($1.85bn).

Caesers Entertainment Corp is also an American hotel and casino entertainment company that operates over 50 properties and seven golf courses. In 2017 they had operating revnues of around $4 billion. Their stock price has done poorly over the past 5 years, from a peak of $18 to a low of $5, it is now trading around $11 due to the recent takeover announcement.

Caesers has around $20 billlion worth of debt, four times that Eldorado holds. The plan is to sell off real estate properties to Venture Capital firms to pay off debt. A parallel agreement will see VICI Properties Inc acquire some of the real estate, generating around $3.2 billion. The companies have identified $500 million worth of synergies and cost saving. Whether this is realizable is yet to be seen.

Caesers has never seemed to have recovered from the. In 2006, private equity firms Apollo Management and TPG took the company (formerly known as Harris), private in a $31 billion leveraged buyout deal. The timing was unfortunate as the 2008 recessions caused the casino and hotel business dried up. Caesers strained under the heavy debt load. It filed for bankruptcy in 2015 at around $18.4 billion.

Eldorado’s management team will lead the company, although it will continue to operate under the Caesers name.