They are landmarks instantly recognisable to anyone visiting Las Vegas – Caesars Palace and the Flamingo.
Now the casino operator behind the pair, Caesars Entertainment, has been snapped up by smaller rival Eldorado Resorts for $17.3bn in a deal that will create America’s largest gaming company.
The deal comes at a time when traditional gaming companies are beginning to consolidate in the face of tougher online competition. Caesars was earlier this year linked with a possible bid for the UK’s second-biggest bookmaker, William Hill.
Other deals in the sector recently include the $2.8bn takeover of Pinnacle Entertainment, the casino operator founded by Hollywood mogul Jack Warner, by racetrack and casino operator Penn National Gaming.
And Wynn Resorts, the US casino giant, recently tried and failed to buy Crown Resorts, the Australian gaming company owned by tycoon James Packer, for $7.1bn.
Today’s merger will put more pressure on Caesars’ big rivals, including MGM Resorts, Wynn Resorts and Las Vegas Sands, to do deals themselves.
The latter two are seen as particularly challenged because both are grappling with changed managerial circumstances: Steve Wynn was forced to step down from the company he founded in February last year following allegations of sexual misconduct while Sheldon Adelson, the billionaire founder of Las Vegas Sands, is currently receiving treatment for non-Hodgkins lymphoma, although the company has insisted he is still fulfilling his duties as chairman and chief executive.
One option for all three could be buying more of America’s regional casinos – a market that is highly fragmented and which looks ripe for consolidation.
The takeover marks the end of a tumultuous decade for Caesars.
The company, then called Harrah’s Entertainment, agreed a $17.1bn takeover in late 2006 – at the height of the pre-financial crisis boom years – by the private equity firms TPG and Apollo Management.
The pair put in just $6bn in cash with the rest being financed by debt. Including Harrah’s existing debts, the total value of the deal came to $31bn, with neither TPG nor Apollo having had any previous experience of owning companies in the gaming sector.
The timing of the deal was lousy. The Strip had been thriving during the boom years but, following the financial crisis and subsequent recession, business collapsed and the company threatened to be overwhelmed by some $25bn worth of debts.
In 2010, the business was rechristened Caesars Entertainment after its best-known asset, but continued to struggle as trade resolutely failed to pick up.
The problems intensified as the company failed to secure a gaming licence in Macau, missing out on the gambling boom in Asia, while at home losses continued to mount: in 2013 alone, Caesars lost $2.2bn as interest on its debts continued to pile up.
The business, by now back on the stock market after a re-listing in 2012 which saw Apollo and TPG retain a controlling 71% stake, was kept afloat by the sale of assets.
By now though, large chunks of Caesars’ debts had been scooped by distressed debt specialists such as Oaktree Capital, Elliott Management and Appaloosa Management, some of whom had ironically worked with TPG and Apollo in the past.
At the end of 2014, Caesars’ owners were warning that the company was about to run out of cash, proposing a reorganisation that would have seen it split into two businesses – one to own the property assets of Caesars and the other an operating company that would manage the casinos.
In January 2015, under pressure from its creditors, the business went into Chapter 11 bankruptcy protection. A fight with the creditors ensued and accusations of asset-stripping were hurled at Apollo and TPG.
The company emerged from bankruptcy protection in October 2017, having offloaded $18bn of its debt, but by now if was generating more revenues from tourism and hosting conventions than it was from traditional gambling activities.
But a sale of Caesars became more likely when, in January this year, it emerged that the activist investor Carl Icahn had been building a stake in the company. Shortly afterwards, he declared a 10% stake, revealing he had done so at the request of other Caesars shareholders anxious to see the business sold. Mr Icahn himself had previously bought and sold other casino assets, including Tropicana Entertainment, which he sold last year to buyers including Eldorado.
Mr Icahn, who in March said he raised his stake in Caesar’s to nearly 15%, today declared himself satisfied with the deal.
He said: “While I criticised the Caesars board when I took a position several months ago, I would now like to do something that I rarely do, which is to praise a board of directors for acting responsibly and decisively in negotiating and approving this transformational transaction.
“It is rare that you see a merger where because of the great synergies ‘one plus one equals five’. I look forward to seeing our investment prosper.”
The combined company will be called Caesars and will own, operate and manage some 60 casino resorts in 16 American states. The company will also own Caesars’ eight UK sites, which include the Empire Casino in London’s Leicester Square, as well as the Playboy Club on Old Park Lane in the capital.
It will be 51% owned by existing Caesars shareholders, with the remaining 49% owned by shareholders in Eldorado, which as part of the deal has agreed to sell a number of property assets, including Harrah’s resorts in Atlantic City and New Orleans, for $3.2bn.
Not owning any part of the business, though, are TPG and Apollo. When the company emerged from bankruptcy protection, their joint shareholding was down to 16%, which they sold down over time until their remaining 5.7% was offloaded in March this year.
Just as wounding to them will be the knowledge that their takeover of Harrah’s is likely to be a case study in ‘how not to do it’ at business schools for many years to come.