Eldorado's Acquisition of Caesars
I commented many months ago that Eldorado Resorts (stock symbol, ERI) would be a great fit to acquire Caesars Entertainment (CZR). It was apparent an activist investor in CZR desired change.
I expect a cascade of accretive growth within 30 months of deal completion
The industry and financial markets listened -- I was subsequently involved in some intriguing discussions with various interested parties. Over the ensuing months since my original posts, Eldorado Resorts has been divesting specific assets to assure the final stages of its acquisition process smoothly passes regulatory and Federal Trade Commission investigations.
Earlier in the process of placing Caesars Entertainment on the market, there were discussions that MGM Resorts could be an acquirer of Caesars. Indeed, I read in a few industry media that this was a viable outcome -- those particular industry media obviously lack industry knowledge. MGM could never have acquired Caesars without having to offload very valuable assets...which it is considering doing but for different reasons than for acquiring Caesars (my article that included comments from MGM Japan's CEO might enlighten people as to why MGM is considering a REIT leaseback for some of its iconic properties).
Eldorado Resorts' acquisition of Caesars Entertainment has already created benefits for the casino industry. Century Casinos is acquiring casinos from Eldorado Resorts that will bolster Century Casinos' industry position and financial strength. Simultaneously, VICI Properties will acquire the land and real estate assets of these properties -- VICI Properties is a REIT (Real Estate Investment Trust) that was spun-off from CZR in 2017.
My expectation is that Eldorado Resorts' acquisition of Caesars Entertainment will complete successfully and will result in a positive domino effect that will benefit the North American industry short-term. Medium-to-long-term, I expect this deal to benefit the global casino industry. Other operators will follow in the footsteps of what Eldorado Resorts has done as it has acquired to grow. Typically, in my experience, casino operators are very conservative and are peopled by low-risk taking executives. What the leadership team at Eldorado Resorts have achieved in recent years in terms of growth is nothing short of miraculous for the casino industry.
It has been brilliant to watch the Carano family and the executives they have selected to manage Eldorado Resorts grow so selectively and efficiently during the last 10 years. They have really shaken industry norms up. At a time when many people are looking to other regions for growth (especially Asia and South America), the people running Eldorado Resorts have shown there's as much opportunity to grow in your own back yard as there is in someone else's...the proverbial grass is, in fact, not greener in someone else's back yard. You just need to be smart and willing to take some risks.
This deal will impact the industry globally
As other operators (slowly) recognise this and (slowly) change to bring the Eldorado Resorts mindset and practices into their own way of operating, we should see a positive boost industry-wide; one that will, eventually I think, have a global impact on the industry. Other operators will see the efficiency gains Eldorado Resorts has filtered from its actions over the last decade that has allowed a small operator grow bigger...much, much bigger. Simultaneously we've also seen some big operators gain by offloading assets that are marginal operations for them, helping small- and mid-sized operators grow. As well as some of the big operators using REITs for cash flow gains from their real estate assets.
The next development stage in this process for the industry once more operators copy the growth route taken by Eldorado Resorts is...ah, now that would be giving too much away in this article. Needless to say, some leading operators are already doing it below-the-radar. I cannot discuss what I know, but I'm sure it will become public domain in the next five or so years.
Morgan Stanley shared some of its research with me recently. It highlighted the benefits Caesars Entertainment's loyalty reward program delivers to each Caesars property, notably regarding incremental revenue. This will allow us to see how good an operator Eldorado Resorts is as it reverse integrates Caesars' Reward program into all its properties. I expect synergies and incremental gains to deliver a cascade of accretive growth within 30 months of deal completion for the combined Eldorado-Caesars Resorts.
Where Next for Eldorado After Its Caesars Acquisition?
Some geographic regions present opportunities, but I don't think their regulatory environments, competitive and/or market profiles fit the criteria that would entice a highly regulated operator such as the new Eldorado-Caesars Resorts to invest into them. This will mean that, once the dust has settled and the analysts have analysed the pros and cons of specific properties, brands and assets, we will see targeted asset sales by the new Eldorado-Caesars Resorts. I already know of one asset grouping seeking a sale. Expect more in the coming years.
Now is a very, very interesting time to be in the global casino industry!