Eldorado Resorts announced it would acquire Isle of Capri Casinos Monday morning in a $1.7 billion deal that would make it the second-largest casino operator in the regionals market by market capitalization.
Under the terms of the agreement, Eldorado will acquire all outstanding shares of Isle stock for $23 or for 1.638 shares of Eldorado common stock. The price represents a 36 percent premium over the September 16 closing price of Isle shares.
Isle of Capri shares jumped by nearly 31 percent Monday morning on the news, while Eldorado shares were down roughly 1.82 percent.
Eldorado shareholders will own approximately 62 percent of the new entity, while Isle of Capri shareholders will own 38 percent.
With the merger, Eldorado will add 13 new casino-resort properties to its portfolio for a total of 20 across 10 states. The move serves as the pinnacle of the company’s aggressive efforts to expand via acquisition in the regional gaming market, as the combined company would have brought in $1.8 billion in revenues over fiscal year 2016.
Calling the deal a “transformational growth opportunity,” Gary Carano, CEO of Eldorado, highlighted the dramatic rate at which the company has expanded in recent years. “In the last two years we have created tremendous value for our shareholders as the scale of Eldorado Resorts will grow from two wholly-owned properties and a 50% interest in a third property in two markets in 2014 to 20 properties in ten states after completing the transaction,” he said.
He also emphasized the geographic diversification within Eldorado’s new property portfolio.
“Strategically, the combination builds the scale of our gaming operations and further diversifies the geographic reach of our operations without any overlap with our existing properties,” he said.
John DeCree, an analyst with Union Gaming Research, estimates that the new entity will have an equity value market capitalization of $1.15 billion, which would make it the second largest company in the regionals space behind Boyd Gaming.
For Isle of Capri, the deal is the culmination of efforts of a new management team, headed by Eric Hausler, to improve the company’s operational efficiency and its balance sheet, most notably the August sell-off of its property at Lake Charles in Lousiana.
“We are pleased to reach this agreement with Eldorado Resorts, which provides Isle of Capri shareholders with substantial and immediate value, as well as the opportunity to participate in the upside potential of the combined company,” Hausler said.
“The premium value our shareholders will be receiving reflects the culmination of several years of hard work by many dedicated Isle of Capri employees and the determination and guidance of our Board of Directors in creating and driving value,” he added.
Steven Wieczynski, an analyst with Stifel Capital Markets, praised Hausler and Isle’s management team for their work.
“We view today’s announced transaction as the culmination of all of the hard work Eric Hausler and his team at ISLE have put in over the past 18 to 24 months to reduce leverage, strategically divest non-core assets, and improve operating efficiency both at the corporate and property levels,” he wrote in a note to clients.
While the transaction was approved by the respective boards of directors of each company, it is still subject to both regulatory and shareholder approvals and is expected to close in the second quarter of 2017.
Two large shareholders, Recreational Enterprises, which owns 24 percent of Eldorado common stock, and GFIL Holdings, which owns 35 percent of Isle of Capri common stock, have both signed agreements to vote in support of the deal.
