We've seen this playbook before. Billionaire investor buys a large stake in a company, pushes for a sale, and cashes out after the sale is complete. Carl Icahn is playing the activist roll to a "T" with Caesars Entertainment (NASDAQ:CZR), acquiring a 15.5% stake in the company and demanding a seat at the boardroom table.
Caesars' management obliged, giving Icahn 3 board seats, with an option for a fourth if a new CEO he finds suitable isn't found in 45 days. Icahn won't control the 12 person board of directors, but he now has enough influence to push the company in any direction he wants it to go.
Sell, sell, sell
There doesn't seem to be much behind Icahn's stake other than pushing for a sale of Caesars Entertainment. I recently highlighted that Eldorado Resorts (NASDAQ:ERI) and Tilman Fertitta's Landry's empire are interested in merging with the company. A deal with Eldorado would likely come in the form of a stock merger, potentially in combination with even more debt for the company. Landry's may have to complete a buyout with billions in new debt on top of the $9.0 billion of debt already on Caesars' balance sheet. Both are extremely risky, and a stock buyout in particular isn't guaranteed to add value for Caesars' shareholders long-term because the value of shares could ultimately decline.
Outside of a sale, there isn't a lot for Icahn to push for. Caesars has already moved most of its real estate assets to VICI Properties (NYSE:VICI), a REIT set up as part of Caesars' bankruptcy process. There aren't many other assets to strip from the company and monetize immediately.
The best case for a deal
As I see it, even more scale wouldn't help Caesars much operationally or financially. But there's one good reason Caesars should make a deal with another regional casino operator, and that's sports betting. Many states require a physical presence in a state to win an online or mobile sports betting license, and bringing large regional companies together could expand the potential markets of the two merged companies.
If Caesars combined with Eldorado it would add Ohio, West Virginia, Colorado, and Florida as potential online sports betting markets, which could be attractive. However, Fertitta's Landry's wouldn't add any new jurisdictions to what Caesars already owns.
That could give Eldorado a leg up, but sports betting is such a small business that I don't think it should be the main driver of a merger.
Icahn has a history of deals in Las Vegas
Icahn has been active in Las Vegas for more than two decades, and has a history of making shrewd deals there. But most of his success has been buying troubled companies out of bankruptcy and waiting for an opportune time to sell to a new buyer.
This time around, he's buying an already public company that's highly leveraged at an all-time high point in the market. He's expected to push for a buyout of Caesars Entertainment, but given the low number of potential buyers, a deal seems like a high-risk proposition just as Caesars Entertainment is getting back on its feet.