Brokerage Sanford C. Bernstein Ltd says it expects Caesars Entertainment Corp to remain a United States-focused casino operator with no exposure to Asia, which will continue to restrict the company’s growth. That is despite the appointment of three new directors affiliated with hedge fund activist Carl Icahn, the institution added.
Caesars announced on Friday that it had reached an agreement with Mr Icahn, which allowed the investor to add three directors to Caesars’ board. Mr Icahn controls a 9.8 percent stake in Caesars, according to company filings.
“Our fundamental view of the company remains unchanged – we believe Caesars’ long-term value is limited by execution overhang and limited organic growth,” said Sanford Bernstein in a note issued on Tuesday.
“Caesars is a U.S.-focused operator with no Asia exposure. We believe its potential foray into [South] Korea is of limited value and its U.S. business will experience limited organic top-line growth,” analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu wrote.
Caesars aspires to bid for a Japan casino licence and is currently preparing for construction of a foreigner-only casino resort – with a local partner – in Incheon, South Korea.
The company has plans to develop a US$700-million casino resort near the Incheon International Airport in South Korea. It is scheduled for a 2021 launch, according to previous commentary from company executives.
In Tuesday’s memo, Sanford Bernstein said it believed Caesars’ long-term value “is limited by execution overhang and a lack of exposure to Asia growth”. The brokerage added that an upside risk would eventually come from large-scale corporate activity, such as a merger or acquisition.
Mr Icahn has publicly stated that the best path forward for Caesars would be a “thorough strategic process to sell or merge the company to further develop its already strong regional presence”.
Sanford Bernstein mentioned that discussions of a merger involving Caesars “have circulated over the past few months”, with reports linking the group to, respectively, fellow U.S.-based casino operators MGM Resorts International, Eldorado Resorts Inc and Golden Nugget LLC.
“There are some value-creating opportunities that can be done without a full merger/sale that may create short-term value,” suggested the brokerage’s team, saying that such asset sales “would deleverage the company and create short-term value” for Caesars’ shareholders.
But it added: “One key question is really whether Icahn is a long-term investor looking to create value with the existing company or looking to flip his ownership for more immediate returns. He has done both in the past.”
In December, Caesars had confirmed receiving a proposal from privately-held Golden Nugget LLC – controlled by billionaire Tilman Fertitta – for a reverse merger that would have included Caesars absorbing Golden Nugget and Mr Fertitta taking over as Caesars Entertainment’s CEO. The company said at the time it had rejected the offer.
In November, the stockbroking arm of Japanese financial institution Nomura played down reports of a merger between MGM Resorts and Caesars. “We seriously doubt that, even if there are such discussions, they will go anywhere,” said the brokerage at the time.
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”The board believes that the Japan IR project presents a unique opportunity for the company to enhance its growth profile”