Eldorado Resorts’ capital raising plans could be catalyst to finalize $17.3bn Caesars deal

Eldorado Resorts’ capital raising plans could be catalyst to finalize $17.3bn Caesars deal

NASDAQ-listed casino operator Eldorado Resorts’ recently announced plans to raise funds could be a catalyst to finalize its proposed $17.3 billion deal to takeover Caesars Entertainment Corporation, Wolfe Research analyst Jared Shojaian said.

A few days back, Eldorado Resorts announced that it would sell 18 million shares of common stock to raise funds. The underwriters of that deal would have a thirty-day window to purchase additional 2.7 million shares. The sale of 20.7 million shares would fetch the regional operator $772 million.

Shojaian, a senior analyst with Wolfe Research, said that the company’s decision to sell shares was not surprising, because many other gaming companies did the same in recent times to take advantage of rebounding stock prices. But, Eldorado also hit a deal with VICI Properties to monetize Caesars Forum Convention Center at Caesars Palace Las Vegas, and sell 23 acres of undeveloped land close to the Las Vegas Strip. All those transactions will collectively fetch $503.5 million to the company.

Citing the company’s deal with VICI Properties, Shojaian said that it seems like another case of tenant/landlord working in concert to assist each other on sensible terms to finalize a deal.

After announcing the decision to sell shares and transactions with VICI Properties, Eldorado announced a $6 billion bond sale, which some analysts believe may prove pivotal in finalizing the casino giant’s proposed takeover of Caesars.

Commenting on the deal, Shojaian said, “We think FTC approval could come this week. 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.”

The combined Eldorado-Caesars entity was burning $11 million per day during the COVID-19 shutdown. The company’s decision to raise funds will add up to eleven months of liquidity to help the entertainment giant to draw on. The proposed deal aims to create the United States’ largest entertainment company. However, the $17.3 billion deal may some high regulatory hurdles due to concerns that it could hurt competition in the field. The combined entity would control four of the Atlantic City’s nine casinos.

Shojaian’s year-end 2021 target price for the stock remains $56 per share. The analyst admitted that he remained conservative in his estimates due to continued uncertainty in the world. However, the analyst continues to see longer-term deep value to the stock.