Shares of regional gaming company Isle of Capri Casinos (NASDAQ: ISLE) jumped as much as 32% today after the company agreed to a buyout offer from Eldorado Resorts (ERI). At 11:40 a.m. EDT, shares had settled up 30.1% on the day.
Eldorado agreed to pay $23.00 per share in cash for Isle of Capri Casinos, or 1.638 shares of Eldorado stock. Including long-term debt, the deal is worth about $1.7 billion.
Interestingly, Eldorado Resorts is a much smaller company than Isle of Capri Casinos, so this isn't a traditional buyout. Given the $2.1 billion in financing JPMorgan Chase has committed to, and the projected EBITDA (earnings before interest, taxes, depreciation, and amortization) -- a proxy for cash flow in gaming -- from the resorts, this is a highly leveraged transaction. It'll require growth in regional gaming to make sense long-term.
Given the huge premium and projected leverage facing the new company, I think it's a good day for Isle of Capri shareholders to take some chips off the table. The price is higher than shares have traded at since before the financial crisis, and regional gaming isn't exactly booming, giving limited upside to investors. Waiting for the buyout is also an option, but with relatively limited cash upside, it's a gamble holding onto shares today.