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Posted by James Tannahill

Since April 2018, Rumor Hound has sourced significant chatter regarding takeover interest in Caesars Entertainment Corporation (NYSE: CZR), the Las Vegas-based owner of the eponymous casino chain. On April 16, 2019, Rumor Hound sourced information that the company’s Board of Directors was forming a transaction committee to evaluate potential deals or strategic alternatives. This was almost exactly one year from the first rumors originating from low popularity social media sources. With nearly a year of lead time until the company announced it was considering takeover approaches, Rumor Hound alerts traders, portfolio managers and analysts about events before wide dissemination.

 

Caesars is a remnant of the leveraged buyout binge of the mid-2000s, when a combination of cheap debt financing and indifference to risk drove reckless deal flow. In late 2006, the company, then known as Harrah’s Entertainment, agreed to be purchased by funds advised by Apollo Global Management LLC and TPG Capital for $17.1 billion. Attracted by the presumably steady, cash flow-generative nature of hotel/casino operators, the firms bet that Caesars’ predecessor could comfortably service large debts and deliver fat dividends. However, the subsequent financial crisis hammered gaming revenue and rendered much of the company’s once-valuable real estate portfolio underwater. After the crisis, the new Caesars went through a painful restructuring marked by the bankruptcy filing of its main casino operating subsidiary, the spinoff of certain casino interests and an ultimate return to public markets.

 

Much of the interest in Caesars revolves around two activist investors, Carl Icahn and affiliates of Canyon Partners LLC, who collectively own approximately 25 percent of the company’s equity. Both believe that the company could achieve significant synergies by merging with another major casino owner/operator. Concurrently, credit markets seem to be pricing in a purchase by a strategic buyer rather than another financial buyer. Credit default swap (CDS) spreads on Caesars’ debt have largely resembled trends in the broader non-investment grade market and have not picked up since the announcement of takeover interest. Despite the company’s recent troubles, the economics of the industry remain somewhat compelling given significant industry cost deflation and the rise of non-gaming businesses as cash centers. Somewhat counterintuitive given the gaming industry’s status, the lack of fear in credit markets may be reflective of a new form of financial sponsor discipline buttressed by the experience of painful restructuring.

 

About Caesars Entertainment

Caesars Entertainment is one of the world's most diversified casino-entertainment providers and the most geographically diverse U.S. casino-entertainment company. Since its beginning in Reno, Nevada, in 1937, Caesars Entertainment has grown through development of new resorts, expansions and acquisitions. Caesars Entertainment's resorts operate primarily under the Caesars®, Harrah's® and Horseshoe® brand names. Caesars Entertainment's portfolio also includes the Caesars Entertainment UK family of casinos. Caesars Entertainment is focused on building loyalty and value with its guests through a unique combination of great service, excellent products, unsurpassed distribution, operational excellence and technology leadership. Caesars Entertainment is committed to its employees, suppliers, communities and the environment through its PEOPLE PLANET PLAY framework. For more information, please visit www.caesars.com/corporate.


Topics: Rumor Hound