Even the most extravagant table play in Atlantic City is small potatoes compared to the stakes for casino hotel owners and operators. And even for a contest among gaming industry titans, Eldorado Resorts’ $17.3 billion deal to acquire Caesars Entertainment is singularly stunning.
The merger would keep the Caesars name, make it the largest U.S. casino operator by far with 81 properties in 16 states and employ about 81,000 people.
Eldorado was a relatively recent arrival in Atlantic City, last year acquiring Carl Icahn-controlled Tropicana Atlantic City. Add Harrah’s Resort Atlantic City, Caesars Atlantic City and Bally’s Atlantic City, and Eldorado would be the city’s biggest operator by far, with 40% of the industry’s employees and 37% of total gaming revenue.
By the time the merger closes, expected by mid-2020, the picture may look a bit different. Eldorado has a history of successful acquisitions, sales and operating efficiencies, and will make more deals for financial and possibly regulatory reasons before Caesars settles. On Thursday, for example, it agreed to sell casinos in Kansas City, Missouri, and Vicksburg, Mississippi, for $230 million as part of preparations for the Caesars purchase. It expects to sell at least one property on the Las Vegas Strip.
Besides the approval of federal anti-trust regulators and stockholders, the Caesars merger will need the N.J. Casino Control Commission’s OK, particularly with regard to whether it would constitute “undue economic concentration” in the state’s casino gaming market.
Given the coziness of unions and the state’s controlling Democrats, Eldorado may also need to reassure state government that the efforts to eliminate redundancies and reduce costs that typically accompany a merger won’t unduly affect union employees. The company already has said it sees $500 million in savings. What might be a distant shot in a future battle was sounded last week when Unite Here workers at Eldorado’s Isle Casino Pompano authorized a strike after more than a year of negotiations failed to produce a contract. That union has about 25,000 members among Eldorado and Caesars employees.
Industry investment analysts’ views of the merger have been mixed.
Those at Deutsche Bank substantially raised their outlook for Eldorado shares, saying “the combined entity, from a financial perspective, harmonizes nicely and throws off considerable free cash flow.” A Macquarie analyst said, “Eldorado is five for five in the merger department, and every time they announce synergies, they find more.”
Analysts at Sanford C. Bernstein had doubts that would be as true this time, saying “this acquisition of a whale operator is at a completely different level.” A Bloomberg Intelligence analyst figured the merger savings at half of what the company estimated.
That’s business. Like gaming, there is no sure bet, just risks to estimate and chances to take.
During the next year, the details of the Eldorado-Caesars merger will become clear and with them, a better sense of how it might affect the Atlantic City market. Overall, the investment and even creative destruction in America’s regulated open markets result in greater economic growth and strength. But as Atlantic City has seen with the rise of regional competition, the benefits are uneven.
We hope the deal shows that New Jersey’s gaming mecca not only remains lucrative, but offers an opportunity for its participants to get bigger and better.