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Could the Eldorado-Caesars Fall Through the Cracks in Fear of COVID-19?
By Jeff Osienya Mar 12, 2020 IndustryLast summer, the Eldorado casino empire rolled the dice on a merger-acquisition of Caesars Entertainment. However, this deal is now in jeopardy because of the impact of Coronavirus on the stock market.Eldorado Resorts Inc is one of the most recognizable casino enterprise giants who made a name for itself by acquiring iconic gambling houses. Some of the most notable acquisitions of the Eldorado casino empire include the likes of Tropicana, Middlebrow, Isle of Capri, Lady Luck and Circus Circus. Last June, Eldorado Resorts made its boldest moves yet by agreeing to acquire Caesars Entertainment Corp for a whopping $17.3 billion.
As impressive as this merger would be, critics were quick to point out that the deal bore a striking semblance to a 2008 leveraged buyout of Caesars by private-equity firm Apollo Global Management. Eventually, this buyout led to the bankruptcy of Apollo Global 7 years later.
However, regardless of these grave concerns, Eldorado’s red-blooded boss, Tom Reeg has been pushing to close this merger acquisition deal. Moreover, billionaire Carl Cahn who is a big shareholder at Caesars Entertainment, is also pushing aggressively for the sale.
The $7 Billion the Banks Promised is at Risk Due to the Coronavirus
As it turns out, all the banks that agreed to offer up to $7 billion of loan to Eldorado Resorts merger acquisition of Caesars Entertainment face a steep battle to offload the money to the investors. This is of course due to fears over the Coronavirus epidemic that is already wreaking havoc across the Vegas Strip entertainment industry.
Last June, Credit Suisse Group AG, Macquarie Group Ltd and JPMorgan Chase & Co, agreed to bankroll the deal. However, with the deal expected to close as soon as next month, the insurers are facing a tight deadline to sell bond and loan buyers on the idea of lending money for acquiring the top gaming company.
If the banks are not able to find enough takers, they may have no choice but to offer the debt at a high discount. And in the process, it could potentially cause Eldorado to raise the money themselves, tearing a massive crack through their balance sheet. The other unlikely solution could be to wait for the coronavirus storm to pass so they can invite investors to their merger.
Coronavirus, the ‘Deal-Breaker’
One day after Nevada reported the second coronavirus case, Eldorado called a board meeting to discuss the deal, and the board members collectively agreed to close the deal as planned by April 11.
Come Monday, Eldorado shares plummeted to 21 percent during a stock selling turmoil that sent the legendary Dow Jones Industrial Average down to over 2,000 points. Two days later, on Wednesday, the stock hit a 52-week low of $22.91 before closing at $24.77, which was 15% lower.
While the board is marching forward with the deal, investors are concerned by how hard the COVID-19 pandemic is hitting Las Vegas. The majority of Americans and tourists alike are cancelling their Vegas vacations, and similarly, Las Vegas conferences are also getting cancelled one after another. The conference call-off that raised many eyebrows was the Adobe Summit at Venetian, which was expected to attract over 22,000 guests this month. And this was only days after the tech giant Google also postponed a company sales and marketing event that was scheduled for Las Vegas in late March.
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