Gambling Giants Mull Over the Idea of a Partnership

Gambling giants Caesars Entertainment and MGM are considering entering into a partnership, in which might be one of the largest mergers to take place within the gambling industry. MGM has already hired Morgan Stanley and Weil, Gotshal & Manges to assess the possibility of a tie-up, according to reports from a gaming publication.

However, there is no offer on the table as of now.

Activist hedge funds, which combinedly own around 25% of Caesars, are the ones encouraging the merger. Both Caesars and MGM have been underperforming in recent times. The former’s shares are down by 25% while the latter’s, by 15%.

The funds, which includes Canyon Partners, a major stakeholder in both, MGM and Caesars, were seemingly responsible for the exit of former Caesars boss Mark Frissora. Frissora made an announcement last week, where he mentioned that he would make an exit by February 8th.

According to certain sources, it was common knowledge that Caesars would be open for a deal after the CEO’s exit.

Former Morgan Stanley investment banker Chaney Sheffield, who oversees gaming and lodging investments for Canyon, is pushing for the merger. Reasons cited for this include cutting down marketing and overhead expenses.

According to other sources, the next 3 to 4 months would be an interesting period.

Regulatory Concerns

If the merger goes through, Caesars and MGM will end up owning about 50% of the hotel rooms in all of Atlantic City and Las Vegas. However, the extreme concentration could end up raising regulatory red flags.

MGM’s enterprise value stands at $30 billion with equity and debt, while Caesars’ stands at $22 billion.

A takeover offer for Caesars was made by the Golden Nugget Casino chain. However, Caesars rejected it. Some sources believe the rejection played perfectly into the hands of activist hedges, who are eager to see the merger with MGM go through.

However, MGM may not be the only option. There is also Wynn Resorts, which is estimated to be worth $18 billion. There are rumors that Wynn may step up to make an offer once it receives the license to construct its casino in Boston.

The Genting Group in Malaysia may also step up to make an offer. The Genting Group is another major player in the global casino market and operates venues like the Resorts World at Aqueduct Racetrack. Apart from Genting and Wynn, several private equity firms are also looking for a piece of the action.