Caesars Entertainment announced Thursday that it entered into an agreement to be acquired and taken private by Fertitta Entertainment, the hospitality and gaming company controlled by billionaire Tilman Fertitta, in an all-cash transaction valued at $17.6 billion.
The deal, which includes a “go-shop” period for Caesars through July 11th to consider other offers, has Fertitta Entertainment assuming $11.9 billion of Caesars’ outstanding debt.
“Fertitta Entertainment brings a proven operating model with a track record of successfully integrating and growing leading hospitality and entertainment businesses,” Caesars said in a statement released this morning. “The transaction positions Caesars to continue executing on the strategy that has made it the leading casino-entertainment company in the United States. Together, Caesars and Fertitta Entertainment have a shared commitment to operational excellence, customer service, and disciplined growth, with employees and guests remaining at the heart of the business.”
Caesars Entertainment Chief Executive Officer, Tom Reeg; Chief Financial Officer, Bret Yunker; President and Chief Operating Officer, Anthony Carano; as well as other members of the corporate management team and property-level management and personnel are expected to remain in their roles and continue to lead the Caesars Entertainment operations at the combined company, the statement said.
“The combination of Caesars and Fertitta Entertainment brings together two iconic and highly complementary platforms to create a dynamic suite of gaming, entertainment, and restaurant brands,” the statement said. “The combined company will offer guests an even broader array of destinations and experiences, all connected by the Caesars Rewards loyalty network. On a combined basis, guests will enjoy access to an expansive suite of diversified offerings – 60 casino resorts and gaming facilities, online gaming including sports betting, icasino, and poker through Caesars’ leading digital platform, retail sports betting at over 200 third-party locations through the William Hill brand, and over 600 Fertitta Entertainment outlets, including Landry’s full-service restaurants, plus multiple amusement, entertainment and aquarium venues.”
Under the terms of the agreement, Caesars shareholders will receive $31 in cash for each outstanding Caesars share. The consideration represents a 49% premium over Caesars’ unaffected share price as of February 25th – the last trading day before rumors of a potential transaction and a 46% premium over the unaffected 30-day Volume-Weighted Average Price as of the same date, Caesars announced.
“The Board of Directors of Caesars Entertainment has approved the transaction and recommends that Caesars shareholders adopt and approve the merger agreement,” a company statement said. “The Board, after detailed consideration with the assistance of its outside financial and legal advisors, determined that the immediate cash premium offered by this transaction is compelling for Caesars shareholders, and its approval of this transaction underscores its commitment to drive and deliver value for shareholders.”
The transaction is subject to the approval of Caesars Entertainment shareholders and the satisfaction of customary closing conditions, including applicable regulatory approvals. In addition, the Carano family, which owns approximately 5% of the outstanding shares of Caesars Entertainment common stock, has agreed to roll a portion of their equity interests into Fertitta Entertainment. Upon completion of the transaction, shares of Caesars Entertainment common stock will no longer be listed on NASDAQ, the company said.
The agreement includes a “go-shop” period through July 11th, during which time Caesars and its financial and legal advisors may solicit, consider, and negotiate alternative acquisition proposals from third parties. Prior to a vote by Caesars shareholders, the Caesars Board of Directors will have the right to cause the company to terminate the agreement and enter into an alternative transaction providing for a superior proposal, subject to the terms and conditions of the definitive agreement, the company said.
“There can be no assurance that this process will or will not result in a superior proposal,” the company said. “Caesars does not intend to disclose updates on this process unless and until it determines that such disclosure is appropriate or required.
The proposed transaction is not subject to a financing condition. The transaction will be financed through a combination of equity contributed by Fertitta Entertainment, assumed Caesars’ debt, and new committed debt financing arranged by a group consisting of 10 banks, the company said.
The deal immediately raised questions among Wall Street analysts over potential divestitures, lease implications and whether the transaction could spur additional M&A across the casino sector.
In a note to investors this morning, analyst David Katz with Jefferies Equities Research said the deal to go private “brings broad implications.”
“The deal announcement is unsurprising given extensive press coverage from the FT, WSJ, and CNBC,” Katz said. “We believe it raises key questions for the group, including the potential to catalyze incremental M&A at the property or corporate level, which could support near-term valuations. Separately, the outcome of discussions with VICI on regional leases remains an important read-through for Opco structures more broadly.”
Katz said several questions remain. Those additional questions he aims to better understand include whether the existing management team is expected to remain intact beyond this transitional period, and whether the transaction requires a divestiture of certain properties.
“Notable overlap includes Las Vegas, Atlantic City, Laughlin, Lake Tahoe, Lake Charles, and Biloxi,” Katz said.
Katz asked whether the change in ownership would ignite a renegotiation of the regional lease with VICI? What synergies can they expect in the deal, such as a combined loyalty program, blending of entertainment/restaurant offerings, or overhead cost savings, and does the deal trigger further M&A in the sector at the property or corporate level?
“News that Caesars and Fertitta were in discussions regarding a potential acquisition has been public since February, following bids from Carl Icahn that began at $28.50/sh in January and increased to $33/sh when Caesars and Fertitta entered an exclusive negotiating window,” Katz said. “Notably, The Wall Street Journal reported a potential transaction price with Fertitta as high as $34/sh in March. That said, with Caesars’ management team expected to remain intact and the regional master lease with VICI still in place – which we view as a key overhang on VICI shares – any incremental change in strategy or operations may be limited until the company is private. In our view, the resolution of this long-rumored transaction could nonetheless act as a catalyst for additional deal activity across the group, with regional assets at Churchill Downs, Monarch, Boyd Gaming, Penn Entertainment and MGM Resorts International emerging as potential medium-term candidates.”
That has been echoed by other analysts as well.
