Eldorado Close to Completing Caesars Deal, Financing Efforts Help, Says Analyst

Posted on: June 19, 2020, 10:00h. 

Last updated on: June 19, 2020, 02:55h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

It’s been a brisk week of capital raising by Eldorado Resorts Inc. (NASDAQ:ERI), with at least one analyst saying the gaming company’s financial maneuvering strengthens its cash position. He added that could be a catalyst to finalize the $17.3 billion takeover of Caesars Entertainment (NASDAQ:CZR).

Eldorado Capital Raising
Eldorado Resorts, operator of the namesake Reno casino seen here, is getting closer to sealing the Caesars deal, says an analyst. (Image: San Francisco Chronicle)

Earlier this week, Eldorado said it’s selling 18 million shares of common stock, with underwriters of that deal having a 30-day window in which they could purchase another 2.7 million shares. The option was exercised, meaning the regional operator sold 20.7 million shares, raising $772 million.

Wolfe Research analyst Jared Shojaian said the equity sale wasn’t surprising, because other gaming companies recently did the same. They were taking advantage of rebounding stock prices, while adding that neither ERI nor Caesars was in a position to sell unsecured debt. Separately, ERI struck deals with VICI Properties (NYSE:VICI) to monetize Caesars Forum Convention Center at Caesars Palace Las Vegas, and sell 23 acres of undeveloped land near the Strip. Combined, those transactions are worth $503.5 million.

In terms of the deal with VICI, this seems like another example of tenant/landlord working together to help each other on reasonable terms to us,” said Shojaian.

The analyst said the combined ERI/Caesars was burning $11 million a day during the coronavirus shutdown, and that Eldorado’s capital raise adds 10 to 11 months of liquidity for the company to draw on. That’s assuming another zero-revenue environment comes to pass.

Getting Closer to the Altar

Soon after revealing the share sale and transactions with VICI, ERI announced a $6 billion bond sale. That could prove pivotal in putting the finishing touches on its takeover of Caesars. The Federal Trade Commission (FTC) and Nevada, New York, and Indiana still need to sign off on the acquisition.

“We think FTC approval could come this week,” Shojaian said. “We think FTC approval may be a pacing item before the three states will approve the deal. ERI’s target close date has been end of June or early July, and we think early July is a reasonable expectation.”

With a few hours left in the Friday trading session, the FTC hasn’t announced a decision. Market participants familiar with the deal say it’s likely the commission rules before the aforementioned states. The Indiana Gaming Commission (IGC) said this week that the purchase will be considered at its July 10 meeting.

It’s been a year since Eldorado announced its takeover offer for Caesars, which will create the biggest gaming entity in the US.

Conservative Estimates, Long-Term Value

With regional gaming companies outperforming following recent reopenings, Shojaian believes the combined ERI/Caesars is back to generating free cash flow, and that his estimates for the new company could ultimately prove conservative.

“Our year-end 2021 target price remains $56,” said the analyst. “We believe we are being conservative in our estimates, given all the uncertainty in the world. But ultimately, over the longer-term when the environment normalizes, there could be more upside. We continue to see longer-term deep value to the stock.”

That price forecast implies upside of about 36 percent from where Eldorado stock trades at this writing.