Would Eldorado Make A Mistake by Acquiring Caesars?

The merger talks are still not official, but rumors have it that Eldorado and Caesars are going to merge sometime in the future. These rumors are far from arbitrary, as Carl Icahn has managed to acquire a huge part of shares of Caesars, which has not been doing well lately. In fact, Icahn has a long history of buying companies that have had financial problems and pushing them to merge with another company, and it is very likely that he is trying to do the same with Caesars at the moment.

On the other hand, the owner of Eldorado Resorts seems to be gathering cash for something that everyone thinks will be a merger.  Fertitta made offers to Caesars before, having valued them at $8.1 billion dollars, which was an offer that was unanimously rejected by the board of Caesars Entertainment. In other words, Fertitta will have to offer a lot more than that in order to make a successful merger and make both sides happy. However, that could turn out to be bad for Eldorado Resorts, and many wonder whether they would make a mistake if the merger really takes place.

Simply put, Eldorado merging with Caesars could be the end for Eldorado as we know it, and it may even cease to exist in the future by destroying itself from within. This would be a similar case to Caesars, which managed to dig a hole for itself back in 2008 when they struck a deal with Apollo Management after throwing away a total of $18.4 billion dollars that were eaten away by Caesars Entertainment Operating Company. In other words, Caesars has made some really bad decisions, and the management took some wrong steps that resulted in the company sinking deep and barely making it back.

They are on the verge of making the same mistake once again, and people who follow the industry are kind of tired of watching Caesars being the protagonist of stories that include making bad deals.

On the other hand, Eldorado is not on the top of the mountain either, as they are also struggling with some debts from the past. If they buy Caesars, they would bite off more than they could chew, and if they encounter a problem, even a minor one, they would be in a lot of trouble and unable to handle it properly. The numbers tell all for Eldorado, which has $4.22 billion in total debt and an additional $3.26 billion and $959 million in financing obligations to GLPI. Their market cap at the moment is $3.84 billion, which means that their leverage has already reached 110%. In other words, Eldorado is a relatively small company that already has a lot of problems in their home court, and adding the problems that come with merging with Caesars will definitely result in the end of an era and both companies being at the brink of extinction.

The pressure from Carl Icahn is high, and it seems that Fertitta is feeling that pressure at the moment, with Eldorado being the most obvious choice for merging. But Eldorado is small and has problems of its own that they can barely fight at the moment.

All of these things are based on speculations that the two companies discuss merging. However, all information is still strictly confidential, and the future is quite unpredictable at the moment. Will these two companies manage to reach the light at the end of the tunnel, or is it dark all the way through?