Caesars Entertainment and MGM Resorts to Merge?

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Caesars Entertainment and MGM Resorts to Merge?

By Rich Luna | Nov 7, 2018

Image courtesy of Caesars Entertainment

Are Caesars Entertainment and MGM Resorts International headed for a merger?

That is the latest speculation based on a report in the New York Post, which cited sources saying that MGM has hired investment bank Morgan Stanley and law firm Weil, Gotshal & Manges to start studying the possibility of a merger.

No offer has been made, according to the report.

There has not been a merger of this magnitude since 2005, when the then-MGM Mirage merged with Mandalay Resort Group. A Caesars-MGM merger would dominate the Las Vegas Strip as well as Atlantic City, as the two groups combined would own about half the hotel rooms in the two cities.

“If they did merge, they would have an overwhelming presence here in Las Vegas,” David Schwartz, the director of the Center for Gaming Research at UNLV, told the Las Vegas Sun newspaper. “I think these companies are always exploring their options through things like this. They’re always looking at mergers and consolidations, so it’s not really surprising MGM would be considering this right now.

“We have seen some big deals in the past in Las Vegas, and this one would be no exception. If this merger did happen, then probably there would be pressure on other companies to merge, so we’ll probably see something of a ripple effect through the rest of the industry.”

This is the second time that Caesars Entertainment has been at the center of a possible merger in recent weeks. The company last month rejected a reverse merger offer from Tilman Fertitta, CEO and owner of such brands as the Landry’s Inc. restaurant portfolio, the Golden Nugget-branded casinos and the Houston Rockets professional basketball team.

The news of a possible MGM merger also comes on the heels of the announcement by Caesars Entertainment that CEO Mark Frissora is stepping down early next year.

Activist hedge funds, which together own about 25 percent of Caesars, have been

pushing for an MGM deal, sources told the New York Post. Caesars shares are off 25 percent year to date, while MGM is down 15 percent. The activist hedge funds include Canyon Partners, which holds leading stakes in both companies.

Calls to Caesars Entertainment and MGM Resorts on Wednesday morning were not returned. Both MGM and Caesars declined to comment on the New York Post story, stating they don’t address rumors, while Canyon also declined comment beyond saying it had not signed a confidentiality agreement with MGM.

Frissora became CEO at Caesars Entertainment in 2015, after serving as CEO of car rental company Hertz and auto parts manufacturer Tenneco.

Caesars emerged from bankruptcy last year after a restructuring process that began shortly before Frissora became CEO and lasted more than two years.

Under Frissora, Caesars completed the renovation of approximately 70 percent of its hotel rooms across its network and announced expansions into Dubai, the planned development of Caesars’ first resort in Mexico and the pursuit of a license in Japan.

The company also announced it has signed a 15-year agreement with the professional football team, the Oakland Raiders, to be the first founding partner of the Las Vegas Stadium. The 65,000-seat facility, which is under construction, will be home to the Raiders when they move to Las Vegas for the 2020 season.

“I have been privileged to lead this iconic company and am proud of all that our team has accomplished,” Frissora said in a statement. “Together, we navigated a complex restructuring process. We have improved our margins significantly and created enterprise value, which enabled the successful reorganization of our Caesars Entertainment Operating Company subsidiary. I am confident that the company is well positioned to thrive and grow in the future. I am committed to maintaining stability and operating discipline during this transition.”

Caesars announced Frissora’s departure, scheduled for February 2019, at the same time it released its third-quarter earnings of 14 cents per share.

Caesars did not announce a replacement for Frissora. The four members of the Compensation and Management Development Committee as well as the chairman of the board, Jim Hunt, will work with a nationally recognized search firm to identify Frissora’s successor.

“The Board of Directors thanks Mark for his instrumental role in leading the company through a challenging period and setting Caesars on a course for sustained, long-term growth and value creation,” Hunt said in a statement. “Under Mark’s leadership, the company has significantly improved margins and profitability while simultaneously increasing customer and employee satisfaction. We are grateful for his leadership and numerous contributions and are optimistic for the future.”

Fertitta’s deal would have valued Caesars at $13 per share, and the reverse merger, with Caesars as the acquirer, would have exchanged stock in a private company owned by Fertitta for shares in Caesars. In its earnings release, Caesars revealed that it rejected the proposed deal, saying it “determined that it is not consistent with the company’s plans to create and enhance shareholder value over the long term.”

Caesars Entertainment operates 47 casinos in 13 states and five countries, primarily under the Caesars, Harrah’s and Horseshoe brand names. Caesars’ enterprise value, equity plus debt, is about $22 billion compared with $30 billion for MGM Resorts International, whose portfolio includes 28 unique hotel offerings including some of the most recognizable resort brands in the industry including the Bellagio, Mandalay Bay, MGM Grand and The Mirage.



Rich Luna

Rich Luna is Director of Publishing for MPI and Editor-in-chief of The Meeting Professional.