"One + One = Five"... That's how Carl Icahn described the merger of Eldorado Resorts and Caesars Entertainment, announced Monday. Teaming up creates the largest US casino operator, with 60 gambling spots across 16 states. Technically, Eldorado is buying Caesars (faux gondola situation included), but they'll share ownership 51%/49%. Here's the receipt:
- Price: Eldorado's paying $8.5B in cash and some stock to acquire 100% of Caesars' shares.
- Debt: Caesars carries some baggage — $8.8B of debt. That now belongs to Eldorado.
- Total cost: The law of addition gets us to $17.3B Eldorado is throwing on the table for all of Caesars' chips.
"Sir, I strongly suggest you hit"... Carl Icahn made this happen. Here's how:
- His hedge fund Icahn Enterprises bought up 9.8% of Caesars' shares. Then he went public with it, and announced that the company should sell itself.
- Caesars' directors immediately gave Carl 3 seats on the board and let him help choose the next CEO.
- Carl's ownership rose to nearly 16%, and he wielded his power to push for the highest bid from Eldorado.
- Carl's shares will now be bought for $13.01 — That's a 51% return in just 4 months since he snagged the board seats.
This is American-style investor activism... Carl Icahn helped create that term in 1985, when he famously took control of TWA Airlines, turned himself a nice profit, and then left (TWA ended up in bankruptcy 3 times). Here's that activist playbook:
- Buy a big chunk of a company's shares.
- Publicly demand change (often insulting management's competence).
- Hope to sell after changes have boosted the stock.
As Carl likes to put it: "A lot of people die fighting tyranny. The least I can do is vote against it."