Caesars Entertainment, Caesars Acquisition agree to all-stock merger

By Caroline Salls

Pittsburgh, Dec. 22 – Caesars Entertainment Corp. and Caesars Acquisition Co. entered into a definitive agreement to merge in an all-stock transaction, according to a news release.

The company said completion of the merger will position the merged company to support the restructuring of Caesars Entertainment subsidiary Caesars Entertainment Operating Co., Inc. (CEOC) without the need for any significant outside financing. Caesars said the strength of the merged company will position it to be a strong guarantor for the restructured CEOC’s obligations, including lease payments its operating company subsidiary will make to a property company.

“Upon completion of the merger and restructuring, Caesars Entertainment Corp. entities will be financially strong, with significantly reduced leverage and a much simpler and straightforward corporate structure,” Caesars Entertainment chairman and chief executive officer Gary Loveman said in the release.

Merged company details

Caesars said the merged company will have a combined market capitalization of $3.2 billion, based on closing prices on Dec. 19. The merged company will have a combined cash balance of $1.7 billion, excluding cash at CEOC.

The company said all Caesars-owned entities, including the CEOC operating company, will be reasonably leveraged and produce positive free cash flow. The merged company will produce positive free cash flow on a consolidated basis.

Under the terms of the merger agreement, and subject to the overall restructuring of CEOC, regulatory approval and other closing conditions, each outstanding share of Caesars Acquisition class A common stock will be exchanged for 0.664 share of Caesars Entertainment common stock, subject to adjustments set in the merger agreement, which would result in Caesars Entertainment stockholders owning roughly 62% of the combined company on a fully-diluted basis and Caesars Acquisition stockholders owning about 38%.

No new debt will be issued in connection with the merger, the release said.

Caesars said the merged company will continue to be controlled by affiliates of Apollo Global Management and TPG Capital. Based on each of the company’s records, about 90% of the stockholders of Caesars Entertainment also own shares of Caesars Acquisition, and vice versa, implying significant overlap in the stockholders of the two companies.

The merged company will conduct business as Caesars Entertainment and continue to trade on the Nasdaq under the ticker “CZR.”

Upon completion of the merger and the proposed restructuring of CEOC, Caesars said the merged company will be well capitalized and positioned for sustainable long-term growth and value creation.

Asset ownership

Caesars Entertainment said it will own a collection of high-growth assets upon completion of the transaction, including properties in destination markets and a majority stake in Caesars Interactive Entertainment, Inc. (CIE), and will operate a network of domestic and international resorts and casinos.

In Las Vegas, the merged company will operate Caesars Palace and own 11 properties, including nine casino resorts and the LINQ promenade and High Roller observation wheel. The merged company will also own CIE, Harrah’s New Orleans, Harrah’s Atlantic City, Harrah’s Laughlin and Caesars Acquisition’s current equity interest in Horseshoe Baltimore.

Loveman will be chairman and CEO of the combined company and has agreed to a new employment agreement that extends his tenure until the end of 2016. Loveman will oversee the restructuring of CEOC and continue to focus on recruiting senior talent to Caesars. Mitch Garber, CEO of Caesars Acquisition, will be CEO of CIE. Following the merger, Garber will join the board of directors of Caesars Entertainment as vice chairman and will assume an expanded leadership role on a project-specific basis across the company.

Centerview Partners served as the exclusive financial adviser to a Caesars Entertainment special committee, and Reed Smith LLP served as the committee’s legal counsel. Moelis & Co. LLC served as the exclusive financial adviser to a Caesars Acquisition special committee, and Skadden, Arps, Slate, Meagher & Flom LLP served as the committee’s legal counsel.

Caesars is a Las Vegas-based casino-entertainment company.

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