Eldorado CEO ‘can see the finish line’ of the company’s $17.3B purchase of Caesars

Thursday, February 27, 2020 11:33 AM

Regional casino operator Eldorado Resorts closed the books on 2019 Wednesday, but the year was all about pointing the Reno-based company’s direction toward the future.

In June, Eldorado announced a $17.3 billion acquisition of casino giant Caesars Entertainment. The transaction is expected to close in the first half of the year. The deal has been approved by shareholders of both companies and regulatory agencies from five states. More than a dozen other states need to sign off on the transaction, as well as the Federal Trade Commission.

“We can see the finish line from here,” Eldorado CEO Tom Reeg said on a conference call to discuss the company’s fourth quarter and year-end results. “If I was making a bet, I would say early second quarter (for the transaction to close).”

Thomas Reeg, Eldorado CEO

Reeg addressed several aspects of the transaction, which will create a regional gaming giant with roughly 60 properties in 18 states.

Caesars currently operates nine Las Vegas resorts on or near the Strip and Reeg said back in June when the transaction was announced that he could see the company selling one or two of the properties.

In December, Caesars sold the off-Strip Rio Hotel-Casino to New York-based Dreamscape Companies for $516.3 million. Caesars will continue to operate the Rio under a two-year lease agreement, paying Dreamscape $45 million in annual rent.

Reeg said the sale of another Strip casino is not imminent.

“I’ve spent zero time on my ability to sell a Strip asset,” Reeg said. “We will not sell a Strip asset sale until we own Caesars. We don’t have any doubt we will execute a Strip asset sale in the first 12 months after the deal closes.”

Reeg added that the only market that could concern the FTC with a potential anti-trust issue is Lake Tahoe. Three of the five major casinos in the South Tahoe region are operated by either Caesars or Eldorado.

“We have to address Tahoe. You should assume that’s in progress,” Reeg said.

Eldorado’s executive team will assume management of the combined company, which will retain the Caesars Entertainment name. Reeg said on the call that several Eldorado properties could be rebranded as Horseshoe or Harrah’s properties, names that are currently controlled by Caesars.

Reeg called 2019 an “obviously big year for us.”

During the year, Eldorado sold five casinos for a total of $564 million. Two other deals are pending; the sale of Isle of Capri Kansas City in Missouri and Lady Luck Vicksburg in Mississippi for $230 million to Twin River Worldwide Holdings, and a sale of Eldorado Shreveport in Louisiana for $230 million to Maverick Gaming. Reeg expects both deals to close in the first half of the year.

Reeg also said real estate investment trust VICI Properties “has raised all money it needs” to fund its part of the transaction. In January, the company raised $2.5 billion to fund its part of the merger. Three Caesars properties under the Harrah’s brand in Atlantic City, Laughlin, Nevada and New Orleans were sold to VICI for a combined $1.8 billion. VICI will lease the operations back to Eldorado for total annual rent of $154 million.

“We are 100% focused on getting (the deal) done,” Reeg said. “There is absolutely zero risk on the financing side.”

Reeg said the company still expects to achieve $500 million in cost savings in the first year after the transaction closes. On its quarterly earnings call Tuesday, Caesars executives said the company has cut $100 million in costs in the past year.

Reeg commended Caesars executives, including CEO Tony Rodio, with operating the business in the eight months since the merger was announced.

“Leaders from both companies have been identified to lead integration planning efforts, which are well underway in a number of critical areas,” Reeg said in a statement. “The execution teams are focused on integrating the two companies post-closing with a plan to drive both top line and bottom line performance.”

In the quarter that ended Dec. 31, Eldorado saw net revenues decline 11.9% to $592.1 million. Operating income declined 32.1% for $58.9 million, which resulted in a net loss of $13.2 million. For the full year, Eldorado revenues grew 22 percent to $2.5 billion.

Reeg said despite a challenging fourth quarter comparison, Eldorado grew cash flow less than 1% to $146.2 million. A year earlier, cash flow increased 22%.

Shares of Eldorado, traded on the Nasdaq, closed at $51.40 Wednesday, down $4.22 or 7.59%. The declines came on the third day the stock markets suffered triple digit declines due to concerns over the spread of the coronavirus.

Reeg said on the conference call that Eldorado has seen “no impact from the virus scare.”

Deutsche Bank gaming analyst Carlo Santarelli said regional gaming stocks have suffered because of coronavirus concerns.

“Right now, fundamentals in regional gaming have taken a backseat to negative momentum, and, more importantly, fear,”  Santarelli said in a Wednesday evening research note. “Despite regional gaming being the one segment of our coverage universe that is likely least impacted by (coronavirus), it has taken the brunt of the impact within the recent market sell off.”

Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.