Rumors are gathering that that merger talks are brewing between Eldorado Resorts and Caesars. We knew something like this would happen soon, given that Carl Icahn has been agitating for Caesars to sell itself. Besides Eldorado, Tilman Fertitta looks to be gathering cash to make an improved offer over what would have been a $13 a share reverse merger. If Caesars already turned that down, a 50% premium over current market value, then Eldorado is going to have to make a much bigger offer of at least $12-13 billion. Fertitta’s previous offer would have valued Caesars at $8.1B and it was unanimously rejected by the board, so $10B probably wouldn’t cut it
Putting it bluntly, if Eldorado merges with Caesars, it would be deeply mortgaging its future and might even end up destroying itself. Just like Caesars dug itself into such a deep hole in its 2008 deal with Apollo Management that the only way it could even keep existing as a going concern was to dump $18.4 billion in bad debt into a corporate trash bin called Caesars Entertainment Operating Company, and have all its pissed off junior bondholders try to sue that zombie for whatever they felt like while Caesars ran away with whatever value they could sneak out the back door with.
Watching the same mistakes being made over and over and over again is tiring. We’re at the tail end of a business cycle and discussing huge leveraged buyouts involving Caesars again. Listening to analysts use complicated finance terminology and whip out a bunch of numbers based on past trends just assuming that everything continues as is forever makes my eyeballs tired from rolling. (It’s also pretty boring to read besides.)
Yes, if Eldorado and Caesars merge, then it would be one of the biggest gambling companies in the US, controlling a whole bunch of stuff, and have a huge top line. So what? Eldorado is already pretty deep in debt though doing a fine job of acquiring good properties at bearable costs in today’s rate environment at least. Biting off more than it can chew specifically now will make any downturn, even a mild one, extremely difficult to handle. And I don’t believe the upcoming downturn will be a mild one. You can’t just take one company, show everyone that’s it’s doing well, and then on that credit alone assume it can handle and fully digest one of the most intractable financial messes in the gaming industry like it was just another one of its synergy projects.