Shares of Caesars Entertainment Corp. (CZR) plunged as much as 17.5% on Tuesday after a preliminary agreement was reached on restructuring bankrupt subsidiary Caesars Entertainment Operating Company (CEOC). At 11:45 a.m. EDT, shares were still down 13.9%.
Under a new agreement to restructure CEOC, Caesars Acquisition Company (NASDAQ: CACQ) will be acquired and the company will be restructured as "New CEC." The new company will be 70% owned by bondholders in CEOC and 24% owned by Caesars Acquisition Company shareholders. Current shareholders of Caesars Entertainment will be left with just 6% of the new company -- but that's better than nothing, which is what they would get in a bankruptcy.
The agreement still needs to go through the bankruptcy court's approval process, but right now this looks more likely to move forward than any agreement yet. The agreement also has Apollo Global Management and TPG Capital, who took Caesars private in 2008, giving up their stakes in the company in exchange for dropping litigation against them.
A 6% stake in the "New CEC" isn't much for current shareholders, and at the current stock price, implies a nearly $20 billion valuation for the full company. That seems very high, given Caesars' weak assets in regional gaming and relatively low-end assets in Las Vegas.
After restructuring, Caesars may present an opportunity for shareholders -- but without a complete balance sheet and income statement, much less approval to move forward with the restructuring, I don't see today as a good reason to buy. Clouds may be lifting over the company, but the uncertainty about Caesars' future is far from over.