Canyon Partners Calls for Caesars Entertainment to Sell Itself

Canyon Partners Caesars Entertainment Buyout

Canyon Partners is a Los Angeles-based hedge fund whose assets equaled $23 billion in 2015.

Canyon Partners LLC, the largest shareholder of Caesars Entertainment Corp., joined a growing chorus of shareholders who want the company to find a buyer. Caesars has struggled with debt since a leveraged buyout in January 2008, only months before the global economic crisis changed the US casino industry.

In a statement released last Friday, Caesars’ top shareholder said, “Canyon’s current view is that shareholder value would be best served and enhanced by an open sale process that will be presented to shareholders for a vote thereon.”

Canyon owns 70 million shares of Caesars, given it more than 10% of the company’s stock. As the largest shareholder in the company, Canyon’s opinion matters significantly, but it is far from the only major shareholder calling for Caesars to seek out a buyout partner.

Earlier this month, Carl Icahn, the second-largest shareholder with 9.8% of the company, called for Caesars to sell itself.

Carl Icahn, Oppenheimer Funds Call for Sale

At the time Carl Icahn made his suggestion, Caesars’ board said it would continue to “engage in dialogue” with the activist investor. Icahn has until March 1 to seek to add board members, but it appears as if he will hold off on that option.

Last Thursday, Oppenheimer Funds, which owns 10 million shares, called for the company to explore buyout options. Oppenheimer said that the company should not add new board member or a new chief executive until it explores a buyout.

CEOC Bankruptcy Lawsuit

Two years ago, Caesars Entertainment’s largest subdivision — the Caesars Entertainment Operations Corporation (CEOC) — emerged from a contested bankruptcy organization. Junior lienholders sued CEOC, claiming former CEO Gary Loveman stripped CEOC of assets (12 casinos) before leaving the operations division holding $18 billion of the company’s $23 billion debt.

A Chicago bankruptcy judge appeared to side with the junior shareholders, who held about 20% of the company. Before filing the reorganization plan, Caesars’ controlling interests (Apollo Capital, TPG) gained approval from the majority shareholders.

The majority of shareholders would be given shares of Caesars’s REIT, while those suing would be left holding CEOC shares. After more than two years of legal battles, Caesars eventually paid the plaintiffs $5 billion to settle. CEOC emerged from bankruptcy, but the parent company still had major debt.

Caesars Needs Capital for Renovations

As of 2019, Caesars is trying to refresh its Las Vegas Strip casinos, but many need investment to renovate or expand them for business operations suited for the 2020s. To do that, it appears a growing number of investors believe the company needs a buyout partner.

Tilman Fertitta’s 2018 Offer

Golden Nugget owner Tilman Fertitta, the restaurant, casino, and sports executive, fielded a merger proposal last year. Under Fertitta’s plan, Caesars Entertainment would buy Golden Nugget Entertainment, but the deal would have brought in influx of cash into the company (and left Fertitta in charge).

Caesars’ board rejected the offer at the time. Last week, Fertitta indicated to Yahoo! News that he was still interested in a Caesars-Golden Nugget merger.

Eldorado Resorts, MGM Resorts

Tilman Fertitta is not the only interested party. Eldorado Resorts, a Reno-based casino company which has expanded across the United States in recent years, also made a buyout proposal to Caesars last year.

At the same time, fellow Las Vegas Strip operator MGM Resorts — like Caesars one of the Big Four casino companies in Las Vegas — has been rumored to be eyeing a merger or buyout in recent months. An MGM-Caesars merger would create a huge US casino operator.

Caesars-MGM Merger Potential?

In fact, if MGM Resorts and Caesars Entertainment pooled resources, it would create the largest casino company in North America, but one with business interests in Macau, the United Kingdom, and the United Arab Emirates. With both companies pursuing a Japanese casino license, they might be better positioned to enter the world’s third largest economy in the coming years.

Canyon Partners, Carl Icahn, and Oppenheimer Funds represent nearly 25% of the company’s shares. The three investors likely command the attention of a considerable number of Caesars’ other shareholders, so the momentum appears to be growing for a Caesars Entertainment sale.