Caesars Entertainment Corp (CZR) announced its all-stock merger agreement with Caesars Acquisition Company (CAQQ) to create one of the largest gaming and entertainment companies worldwide.
The stock price of Caesars Entertainment surged nearly 18% to $15.90 per share at the time of this writing around 11:02 A.M. in New York.
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Proposed financial restructuring plan
The merger is intended to support the proposed restructuring of Caesars Entertainment Operating Company, Inc (CEOC). The combined company will have sufficient capital and will be positioned for sustainable growth and value creation over the long-term.
Last Friday, Caesars Entertainment reached an agreement with the first lien noteholder steering committee of CEOC regarding the terms of its proposed financial restructuring plan that would significantly reduce its long-term debt and annual interest payments. The plan would also strengthen the balance sheet of CEOC.
Under the plan, CEOC will voluntarily file for chapter 11 bankruptcy in the middle of January 2015 to implement the balance sheet deleveraging.
Caesars Entertainment will own high-growth assets after the merger
According to Caesars Entertainment, it will own a collection of high-growth assets including a majority stake in Caesars Interactive Entertainment, Inc. (CIE). The company will also manage a valuable network of domestic resorts and casinos.
The combined company will operate Caesars Palace and 11 other properties in Las Vegas, making it a prominent gaming and hospitality company in the city. It will also own CIE, Harrah’s New Orleans, Harrah’s Atlantic City, Harrah’s Laughlin and the current equity interest pf Caesars Acquisition Company in Horseshoe Baltimore.
Combined company will be financially strong
In a statement, Guy Loveman, chairman and CEO of Caesars Entertainment said the merger solidifies their focus on owning assets in destination and high-growth markets and business while maintaining the benefits of operating their network and Total Rewards loyalty program. He emphasized that the combined company will be financially strong after the merger and restructuring.
Loveman added that the combine company will have “significantly reduced leverage and a much simpler and straightforward corporate structure.” He will continue to serve as chairman and CEO of the combined company.
The combined company will have $3.2 billion in market capitalization on a pro-forma basis based on the closing prices of the stocks on December 19. It would have a combined cash balance of $1.7 billion excluding cash at CEOC.
Caesars Growth Partners, LLC had approximately $1 billion of cash and net leverage of 3.2x as of September 30, 2014.