Former Nevada gaming regulator: No material reason to block Eldorado-Caesars deal

April 13, 2020 11:30 AM
  • Howard Stutz, CDC Gaming Reports
April 13, 2020 11:30 AM
  • Howard Stutz, CDC Gaming Reports

Despite the current closure of the nation’s casino industry due to the ongoing COVID-19 coronavirus pandemic, the former chairwoman of Nevada’s Gaming Control Board said she doesn’t see a material reason why regulators would block the $17.3 billion merger between Eldorado Resorts and Caesars Entertainment, “based on publicly available information.”

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Becky Harris, who served two years the state’s top gaming regulator, told an investors’ conference call organized last week by SunTrust Humphrey gaming analyst Barry Jonas that the casinos currently operated by the two companies wouldn’t necessarily have to be reopened for regulators to approve the transaction, which was announced 10 months ago.

Regulatory agencies from Nevada, New Jersey, and Indiana still need to approve the transaction, along with the Federal Trade Commission.

In a research note published Sunday, Jonas said Harris told investors there is nothing barring state agencies from conducting hearings virtually – the Nevada Gaming Control Board held an Internet-based meeting last week – and other state commissions are likely to follow the lead of Nevada and the FTC. Seven states have approved the merger, in which Reno-based Eldorado management becomes the controlling entity, although the combined company will retain the Caesars name and Nasdaq listing.

UNLV International Gaming Institute Academic Fellow Becky Harris IGI’s 17th International Conference on Gambling & Risk Taking.
(Josh Hawkins/UNLV Creative Services)

“Our discussions reinforced our view that the more drawn out regulatory process is a function of coronavirus slowing procedures versus regulators potentially raising incremental concerns in the current environment,” Jonas wrote in the report.

He hinted that the FTC could rule on the Eldorado-Caesars deal by the end of April, which would pave the way for the remaining states to sign off on the transaction and allow the deal to close by the end of June.

Harris, the first woman to lead Nevada’s Gaming Control Board, is a former Republican state lawmaker and  currently a distinguished fellow in gaming and leadership at UNLV’s International Gaming Institute. She is also a regulatory, policy and legal consultant at Global Market Advisors.

Casino sales in place

Under the terms of the merger agreement, Eldorado will pay $8.40 per share in cash and 0.0899 shares of Eldorado stock, or $12.75 per share, for each Caesars’ share. The deal, which would create a regional gaming giant with roughly 60 properties in 18 states, has been approved by the shareholders of both companies and is expected to result in $500 million in cost savings, according to Eldorado management.

In the past year, both companies – primarily Eldorado, however – have announced sales of casinos nationwide that would alleviate any potential anti-trust issues.

Caesars sold the Rio in Las Vegas but continues to operate the resort, one of nine casinos it manages on or near the Strip. In March, Eldorado agreed to sell its management stake in the Montbleu Resort in Lake Tahoe to the Las Vegas-based Maverick Gaming for an undisclosed price. Two months earlier, Eldorado agreed to sell the Eldorado Shreveport in Louisiana to Maverick for $230 million. Eldorado also has a deal to sell Isle of Capri Kansas City in Missouri and Lady Luck Vicksburg in Mississippi for $230 million to Twin River Worldwide Holdings.

Jonas said the Montbleu deal may have been the FTC’s final hurdle.

Barry Jonas, SunTrust Bank

Meanwhile, the growing pandemic caused Eldorado and Caesars to close their nationwide casino portfolios in the middle of March. Last week, Eldorado furloughed 90% of its 15,500-person workforce at 23 properties in 11 states after paying employees through April 10.

On April 3, Caesars furloughed 90% of its 64,000-person workforce at 53 properties in 14 states.

‘Fast recovery’

Harris told conference call listeners that both companies had enacted “solid employee welfare programs amidst closures.” She suggested the combined company would have a “fast recovery” when the casino industry reopens because of its “meaningful regional exposure.”

Harris suggested a “ticking fee” – costs incurred by Eldorado at more than $2 million a day – is “likely factored in accelerating the decision-making process.”

Jonas said Eldorado has “fully committed financing from 11 different banks” to cover the $7.2 billion of debt required for the transaction. He also noted the debt markets “appear to be slowly regaining footing,” based on recently announced debt deals by Wynn Resorts and Tilman Fertitta’s Landry’s Corp., which owns the Golden Nugget casinos.

“While we don’t believe the involved banks have much recourse to back out, we also see that as unlikely given the nature of relationship banks and potential reputational risk,” Jonas said

Also, real estate investment trust VICI Properties has fully financed its portion of the deal, purchasing three Caesars properties under the Harrah’s brand in Atlantic City, Laughlin, Nevada and New Orleans for a combined $1.8 billion. VICI will lease the operations back to Eldorado for a total annual rent of $154 million once the deal closes.

‘No glaring issues’

Shares of Eldorado and Caesars have been hammered by investors since February. Eldorado is currently trading at $18.11, down 75% from its 52-week high. Caesars at $7.93, down 46% from its high point.

“We think the remaining regulatory bodies are not likely to stand in the way of this transaction without any glaring issues,” Jonas wrote. “Despite share reactions and some liquidity concerns, our base assumption remains that Eldorado is able to receive appropriate regulatory approvals.”

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