If either a merger or sale looms for American casino owner and operator Caesars Entertainment Corp – as recommended by hedge fund activist Carl Icahn – then realistically only three casino firms could do so using cash. Each has operations in Macau.
So said brokerage Sanford C. Bernstein Ltd in a Tuesday note. The institution said that – among the United States-based casino operators that might be in the running for Caesars Entertainment – either Wynn Resorts Ltd or MGM Resorts International could put some cash into a takeover of Caesars Entertainment, but only Las Vegas Sands Corp was likely to be capable of pulling together a deal entirely in cash.
The firms respectively have subsidiaries – Wynn Macau Ltd, MGM China Holdings Ltd and Sands China Ltd – running casino resorts in Macau that provide a healthy portion of the parents’ total group earnings.
In a note issued on Tuesday, Sanford Bernstein analysts Vitaly Umansky, Kelsey Zhu and Eunice Lee wrote that smaller U.S.-based suitors, such as Eldorado Resorts Inc and Penn National Gaming Inc, had no liquidity and lots of debt, and could do only a reverse merger for stock. “There could be cash funding created via asset sales (but a large portion of the Caesars Entertainment asset base has already been sold),” the note said.
Each of the three potential cash suitors for Caesars Entertainment – as defined by Sanford Bernstein – are looking to expand into Japan, where the first legal casinos will be opened in the next few years. On that basis, Sanford Bernstein said it did not think any of the trio were likely to go after Caesars Entertainment.
“With the Japan opportunity coming up (where we are talking about US$8-billion to US$10-billion-sized development projects) – we do not believe Las Vegas Sands, MGM Resorts or Wynn Resorts (who are also the more likely candidate to be able to be awarded a licence in Japan) would be interested in picking up Caesars (and not just for reasons tied to Japan) and gaining more exposure to the U.S. regional market and Las Vegas,” the report said.
Sanford Bernstein noted that recent manoeuvres by Mr Icahn had increased investor interest in Caesars Entertainment stock.
After taking a 9.8-percent stake in Caesars Entertainment at the start of this month, Mr Icahn said a “thorough strategic process to sell or merge the company” were the most appropriate options. In the past few days, Mr Icahn has raised his interest in Caesars Entertainment to 17.75 percent.
He is currently the single-biggest investor in the company that owns seven properties in Las Vegas, Nevada, and another five properties elsewhere in the U.S. It leases another 21 properties.
Mr Icahn has the right to appoint up to three directors and a fourth if a new chief executive for Caesars Entertainment is not named within a 45-day period that commenced on March 1.
The Sanford Bernstein note said Caesars Entertainment’s establishments in Las Vegas were considered to be mid-market or “low-end”, while the group was losing market share in eight of nine other U.S. states where Caesars Entertainment had venues.
Outside the U.S., companies that use the Caesars brand aspire to build and run one casino in Incheon, South Korea, and eventually to develop and run another casino somewhere in Japan.
Sanford Bernstein said Caesars Entertainment had been either an acquisition or merger target of “MGM [Resorts] and Eldorado Resorts, a reverse merger target of Golden Nugget [LLC], or even a buyout target of Blackstone”. The latter was a reference to the U.S.-based asset management firm the Blackstone Group LP.
It added: “While a potential buyout may result in acquisition at a premium to the current share price (albeit likely in the form of new stock), failure to find a transaction could easily lead to a collapse in shareholder interest and a drop in the price. With limited long-only interest, the value dislocation could last for some time.”
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Vitaly Umansky, Eunice Lee and Kelsey Zhu
Sanford Bernstein analysts