Morningstar Says Eldorado & Caesars $17.3bn Merger At Risk

A Morningstar analyst has made a bold assessment stating that that the prospective $17.3 billion merger between Caesars Entertainment Corp. and Eldorado Resorts may be at risk due to the huge debt that Caesars has over its head.

Even if the merger does go through, the analyst claims that it will not result in the expected rewards that Caesars Entertainment would have hoped for.

Tom Reeg, Eldorado’s CEO, recently made headlines after stating that the merger would be closed by June, which was the original expected date for closing before the COVID-19 pandemic demolished both companies’ financials. 

The senior equity analyst for Morningstar, Dan Wasiolek said in his report to investors that there are significant risks tied to Eldorado’s need to obtain more funds to close on their merger with Caesars, as the leisure and travel industry which both companies operate in continue to take a beating from the coronavirus pandemic.

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Caesars and Eldorado Shares Slumping 

Caesars and Eldorado suspended all operations in the United States in mid-March. Both firms are now preparing to reopen their properties as more states ease their COVID-19 related restrictions.

The casino closures in the U.S have led to slumps on both companies’ shares: Eldorado shares have dropped by 48% this year, while Caesars shares have dropped by roughly 21%. Eldorado has reported operating losses of $123.2 million during the first quarter of 2020. 

Wasiolek estimates that the merger will benefit Caesars’ competitive position marginally as their U.S properties will double to 60, and increase their loyalty membership by 10 million to a total of 65 million.

According to Wasiolek, Caesars’ market share in Las Vegas will likely remain, as renovations continue on their Strip properties. The company is also preparing for their forthcoming launch of the Caesars Forum convention center this year. 

Caesars to Focus on Domestic Operations

Wasiolek said in his report that the U.S demand for casino gaming is much lower than in Asian markets, such as Singapore and Macau. Given the fact that the U.S market is expected to get more crowded and competitive in the next two years, Caesars will have a tough challenge on its hands.

Caesars pulled out of the race for three casino licenses in Japan, stating that the company will instead focus on the merger with Eldorado and their domestic properties. Caesars is the only significant integrated resort operator in Las Vegas to not have a presence in Macau. MGM Resorts International, Las Vegas Sands, and Wynn Resorts are all permitted to operate in what is generally considered to be largest gambling hub in the world.