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NEWS 25 June 2019

Eilers & Krejcik analyst "pessimistic" about long-term Eldorado Caesars prospects

By Tim Poole

Eilers & Krejcik Gaming analyst Matt Kaufman is concerned by Caesars Entertainment’s long-term health following its merger with Eldorado Resorts.

Eldorado confirmed its $17.3bn acquisition of Caesars on 24 July, with the transaction expected to be completed in 2020; the new company will keep the Caesars name but will be managed by the Eldorado executive team.

While activist Caesars investor Carl Icahn has expressed his pleasure with the deal, Eilers & Krejcik Gaming’s VP of Digital & Interactive Gaming is less buoyed by the stark organisational differences at play.

Kaufman told Gambling Insider: "In the short term, the deal benefits Caesars shareholders, but in the long term I'm pessimistic about this being good for the health of the business.

"The deal is obviously exciting sounding, but the synergies between both organisations seem limited and their approaches to the business are vastly dissimilar."

Kaufman, specifically, is unsure of Eldorado’s insistence on a decentralised, regional approach. During its conference call for investors, CEO Tom Reeg emphasised the benefits of said strategy, suggesting a more centralised outlook was behind some of Caesars’ recent struggles.

But the Eilers & Krejcik Gaming analyst disagrees: "Eldorado's upper management wants to decentralise power within the company and give the General Managers at individual properties more power – this is a completely opposite approach from how Caesars and the majority of top competitors operate today.

"Allowing each casino to run more independently is a much more old-school approach that seems unlikely to work in hyper-competitive markets like Las Vegas.

"There are tremendous economies of scale casino chains get to take advantage of with more centralised decision making, including but not limited to the economies of scale from shared analytics, hotel rate optimisation and cohesive branding in general."

You can read more about the Caesars merger in our analysis of the deal’s conference call.

RELATED TAGS: Financial | Mergers & Acquisitions
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