Shares of gaming giant Caesars Entertainment (NASDAQ:CZR) jumped as much as 17.4% in trading Monday after the company agreed to be acquired by Eldorado Resorts (NASDAQ:ERI). Shares were still trading up 14.4% at 2 p.m. EDT.
Eldorado will pay $12.75 per share for Caesars, which amounts to an $8.58 billion buyout price. Payment will be made in the form of $7.2 billion in cash and 77 million Eldorado shares. The total deal including debt is worth $17.3 billion. As part of the acquisition, VICI Properties (NYSE:VICI) will buy $3.2 billion of real estate from the combined company, which will help pay down some of the debt.
This is clearly a very highly leveraged buyout, even with the VICI Properties acquisition, and makes Eldorado a new power player on the Las Vegas Strip. But we've seen leveraged gaming buyouts go bad, and if the economy slows in coming years, Eldorado may feel it first in the gaming industry.
Not surprisingly, Eldorado's stock has fallen 13.2% in trading today because investors now see it as a much higher-risk company with the Caesars announcement. Since it's only a small portion of the deal total, I don't think Eldorado's stock price will be a problem, unless the free fall continues.
What will be more important for investors to watch is the underlying financing of new Eldorado debt and any other necessary financing approvals from related parties. They're what could really derail a deal and potentially give back most of Caesars' gains today.