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Caesars, Eldorado merger moving forward

The planned $17.3 billion merger between Caesars Entertainment and Eldorado Resorts is moving forward despite a shutdown of their casinos as state and federal health officials try to stem the rate of infections from the coronavirus.

But analysts say it will take longer and cost more before the merger is completed, according to gaming industry analysts.

“We remain convinced the deal is in fact close,” said John DeCree, an analyst with Union Gaming in Las Vegas. “However, we believe the more important question is why the deal should close and what it means for the industry.”

The deal, which was announced in June and approved by shareholders in November, still needs to be approved by New Jersey, Indiana and Nevada gaming regulators. The Federal Trade Commission also needs to approve the merger.

The proposed merger was not on the Nevada Gaming Control Board’s agenda for its Wednesday meeting, according to the board’s website.

In a note to clients, DeCree said the “strategic rationale” for what the merger made sense to begin with remains unchanged. That is, he said, the industry’s best recipe for driving revenue through the system with Caesars Total Rewards loyalty program with Eldorado’s industry-leading formula for realizing operating efficiencies.”

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“This would be an ideal combination to drive recovery following the coronavirus pandemic,” DeCree said. He added that while no one could have predicted a pandemic shutting down the entire industry and economy, Eldorado did have the foresight to prepare a formidable balance sheet for the combined company that could endure an economic downturn.

“The company has ample financing commitments of over $11.8 billion to fund the transaction,” he said. “Even with the expected cash burn from casino closures over the next several weeks, Eldorado has sufficient financing to close the deal and ample liquidity when it does close.”

Caesars and Eldorado had expected the deal to close by mid-April but is now expected to close in late May or early June, according to analysts. Eldorado owns and operates 23 properties in 11 states.

“Our discussions with (Eldorado Resorts) management suggest that despite coronavirus they are still committed to closing the transaction as they still believe in the long-term strategic rationale,” said Barry Jonas, an analyst with SunTrust Robinson Humphrey. “We believe coronavirus shutdowns do not meet the material adverse change (MAC) clause of the merger agreement, and Eldorado would likely need to pay a sizable termination fee should they not proceed.

“Investors have questioned whether the financing can be held up by the banks, and we believe the financing is fully committed under a contractual obligation to fund $7.2 billion to close the deal.”

Jonas noted that lenders could refuse to fund the deal if the borrower is insolvent, “which our analysis suggests won’t be the case within six months under any scenario above.”

Meanwhile, Caesars announced it would furlough 90 percent of its total workforce, including property staff and corporate employees. The Las Vegas-based company operates 53 properties in 14 states that have been closed since last month. Caesars employs 64,000 employees companywide, according to a filing with the U.S. Securities and Exchange Commission. The company said the furloughed workers will remain Caesars employees.

“Given the closures of our properties, we are taking the difficult but necessary steps to protect the company’s financial position and its ability to recover when circumstances allow us to reopen and beginning welcoming guests and employees back to our properties,” Tony Rodio, CEO of Caesars, said in a statement.

The company is paying furloughed employees for the first two weeks of the closure period and those employees can use their available paid time off after that.

More furloughs

In other gaming news, it’s not just casino companies that have been forced to restructure their business, suppliers are also facing challenges as demand for slot machines and table games has come to a halt with very little to no demand currently.

Slot machine manufacturer IGT is furloughing employees and reducing salaries for senior executives, according to a company statement.

“The (coronavirus) pandemic has had a significant impact on many of IGT’s customers and markets we serve,” said Robert Vincent, chairman of IGT Global Solutions Corp. “We are taking specific actions to bring our operations in line with customer and player demand.”

The company has implemented “short-term furlough programs for certain employee groups.” IGT did not disclose the number of employees furloughed or how pay and benefits will be reduced for the next eight weeks.

Scientific Games has reduced hours and pay for some workers and furloughs for those support roles that have seen a decrease in industry work. The company’s executive team had their salaries cut in half, while CEO Barry Cottle will not be paid during the pandemic.