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Why Caesars Entertainment Stock Popped 42.9% in April

By Travis Hoium – May 5, 2020 at 3:42PM

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Caesars' merger with Eldorado may happen after all.

What happened 

Shares of casino giant Caesars Entertainment (CZR) jumped 42.9% in April, according to data provided by S&P Global Market Intelligence, after investors started to think its merger with Eldorado Resorts (ERI) seemed more likely. 

So what 

As April wore on, the market got a little more bullish as Caesars and Eldorado inched closer to their merger. Management teams at both companies insisted that the deal will go as planned, despite the fact that closing was pushed from April to June. 

Roulette wheel with a black background.

Image source: Getty Images.

Asset sales that were part of the agreement continue to move forward, with Caesars selling Bally's Atlantic City to Twin River Worldwide Holdings for $25 million in cash. Twin River also bought the Eldorado Resort Casino Shreveport and MontBleau Resort Casino from Eldorado. The sales came at extremely low prices given the current casino market downturn, but the fact that they're taking place means both companies are pushing forward with the merger. 

Now what 

I think Caesars and Eldorado will be a risky combination given the high leverage Eldorado is employing to get the deal done. But Caesars is due to get $8.40 per share in cash along with 0.0899 shares of Eldorado when the deal closes. If the cash portion alone comes through as planned, Caesars could be a steal for investors. But this is still a high-risk stock, and I wouldn't be surprised if the merger doesn't happen as planned, which could send shares lower again. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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