Reports have emerged of a possible merger deal between MGM Resorts International and Caesars Entertainment Corp. Sources say the two Las Vegas casino giants are exploring the prospect of a $20 billion giant tie-up.
Activist Hedge Funds Support Sale
The massive deal has received the backing of activist hedge funds which own around a quarter of Caesars shares. Caesars Entertainment has seen its stocks drop by 25% since October 2017 after the company underwent restructuring during which its merger with Caesars Acquisition Company was completed. At the same time, its main operating unit, Caesars Entertainment Operating Company also got out of bankruptcy. During this period, MGM Resorts has suffered from a 15 percent fall in stock market prices.
According to the New York Post, sources familiar with the ongoing talks have reported that MGM has sought the help of investment bank Morgan Stanley as well as law firm Weil, Gotshal & Manges to study the possible merger.
The unnamed source added that Chaney Sheffield, head of Canyon Partners, which holds sizeable stakes in both Caesars and MGM, is actively pushing for the giant tie-up, which would eventually lead to significant savings in overhead and marketing. Developments would likely emerge in the next three to four months but nothing has been officially confirmed or denied as of now.
Apollo Global Management, one of Caesars’ biggest shareholders is also reportedly supporting the sale. Hedge fund HG Vora Capital Management, whose stake in Caesars currently stands at 5 percent is reportedly convincing the company to consider asset divestiture or an absolute sale.
Caesars CEO Announces Departure
Reports of a possible deal have emerged following last week’s announcement that Caesars CEO Mark Frissora is quitting his post effective February 8, 2019. Caesars made the announcement when it released its Q3 financial results. The American business executive and philanthropist has been at the helm of the company for three years.
Sources say activist hedge funds which have long been eyeing an outright sale of the company are behind Frissora’s ouster. Frissora is reportedly against the idea of selling the company, which largely contradicts with the views of the activist hedge funds.
His departure has opened up speculations the company might be more open to sale. Barry Jonas, gaming analyst at SunTrust Robinson Humphrey said the CEO’s departure should not affect ongoing mergers.
Regulators Will Be Concerned About Merger Talks.
A merger between MGM and Caesars would result in one of the most powerful gaming companies in the United States. Should the merger go through, the new company would own around 50 percent of the hotel rooms in Las Vegas and Atlantic City. Both firms would dominate the Las Vegas Strip as they have huge properties in the gaming and hospitality market. This scenario would likely become a cause for concern for regulators, considering its impact on competition and business operations.
MGM has a $30 billion enterprise value which includes debut and equity and Caesars value is estimated to be around $22 billion. Experts say the possible merger could have far-reaching impact on the industry, given the sheer size of the combined companies.
Tilman Fertitta’s Golden Nugget, a much smaller casino and hotel chain recently made a takeover offer to acquire Caesars but the offer was turned down. The company said Mr. Fertitta’s offer does not coincide with its goal of enhancing shareholder value. The announcement has opened the gate for more casino firms to contemplate making an offer regarding a potential merger with Caesars Entertainment.
Companies Who Could Make An Offer
There are quite a few companies who could be interested in a merger with Caesars. Wynn Resorts, for instance could bring an offer to the table, under the assurance that its casino license in Boston would continue to hold good. Malaysia’s Genting Group could also very well be interested in holding discussions with Caesars.
Caesars might also attract private equity firms which already carry a license to run casinos such as the Blackstone Group which now owns the Spanish gambling company Cirsa.
There is still no official offer on the table according to sources and both MGM and Caesars have declined to comment on the matter amid ongoing rumors and speculation. Caesars share prices went up by 3 percent on Monday after reports of an MGM merger surfaced.

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