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Caesars Entertainment did not advance Carl Icahn’s competing acquisition proposal after raising concerns about its financing, leverage, liquidity, and regulatory execution, despite its higher price.
The decision keeps Fertitta Entertainment’s planned takeover moving forward. If completed, it would place Caesars Atlantic City, Harrah’s Resort Atlantic City, and Tropicana Atlantic City under the same ownership as Golden Nugget Atlantic City, giving Fertitta control of four of the city’s nine casinos.
A new preliminary proxy filing provides a detailed account of the competing bids and why Caesars remained with Fertitta.
Icahn submitted a higher offer in July
Caesars agreed in May to be acquired by Fertitta for $31 per share in cash. The transaction is valued at approximately $17.6 billion, including $11.9 billion in Caesars debt that Fertitta would assume.
The agreement allowed Caesars to seek competing offers until July 11. Its financial adviser contacted 19 potential buyers, but Icahn’s group was the only one to submit an alternative proposal.
Icahn submitted a non-binding offer of $34 per share on July 10, nearly 10% more than Fertitta. It relied on approximately $6.5 billion in new debt; about $1.4 billion in cash held by the Icahn Group, Caesars, and their subsidiaries at closing; and approximately $860 million in equity rolled over by Icahn entities, certain Carano family members, and Caesars management.
The draft debt commitment letter provided by investment firm Jefferies was unsigned and missing several important terms, including interest rates. Jefferies also told Caesars that it could not execute the letter until it secured commitments from other investors, who had not yet been identified.
Caesars questioned debt load and liquidity
Caesars said Icahn’s proposal would leave the resulting company highly leveraged, with most of its anticipated free cash flow needed to cover interest payments on the new debt. The company’s existing revolving credit facility, which functions as a flexible line of credit, would also no longer be available.
Icahn attempted to address some of those concerns by replacing $1 billion of the proposed debt with additional equity. However, Caesars said it still did not know where that money would come from or whether the new investors could obtain any required gaming approvals.
The company also questioned projections that significantly reduced anticipated capital spending to increase free cash flow. That concern is notable in Atlantic City, where Caesars has invested $400 million in upgrades across its three properties.
The filing does not break the proposed capital-spending reductions down by property, making it unclear whether any Atlantic City properties would have been affected.
Caesars said these issues created significant execution risk because gaming regulators closely examine the financial profile of the company that would emerge from a transaction.
Fertitta’s financing offered more certainty
By contrast, Fertitta Entertainment had secured committed debt financing from a group of 10 banks, and the acquisition is not subject to a financing condition.
Caesars said there had been no material progress on the fundamental issues with Icahn’s proposal by Aug. 10. After the extended review deadline passed, the company told Icahn’s group that further discussions would be limited under the merger agreement and asked it to return or destroy the confidential information it had received.
Caesars’ board continues to recommend that shareholders approve the Fertitta merger agreement, although the date of the vote has not yet been announced.
The acquisition remains subject to regulatory approvals in New Jersey and other gaming jurisdictions. The New Jersey Division of Gaming Enforcement previously confirmed to PlayNJ that it will review the transaction under the Casino Control Act and related regulations.
Neither the filing nor the transaction announcement identifies any planned sales involving Caesars’ Atlantic City properties or outlines property-specific operational changes under Fertitta’s ownership.
