Earlier this week I wondered aloud if Cosmopolitan was sold or on the market. After re-reading both articles I sourced and seeing responses here and on twitter I think it’s safe to say that Cosmo wasn’t sold to a drug company. It’s time to hypothesize what will happen to Cosmo.
That said, it seem look as if the owner of Cosmopolitan of Las Vegas, Deutsche Bank, will be putting the casino on the market next year.
However, the bank is unlikely to pursue a sale of those companies before 2013 because of difficult conditions for mergers and acquisitions.
Earlier this week I was having a twitter conversation with Vegas Tripping contributor Misnoper. While @Misnoper is trying to figure out why Penn National purchased Caesars in St. Louis for $610 million in cash, I’m wondering if Caesars Entertainment isn’t preparing to buy Cosmopolitan.
Caesars Entertainment Corporation (NYSE: CZR) has signed a definitive agreement to sell Harrah’s St. Louis to Penn National Gaming, Inc. for $610 million in cash. The transaction is expected to close in the second half of 2012, subject to regulatory approvals
The $610 million price almost looks like a fire sale by Caesars just to grab some cash.
The deal looks good for Penn, but it’s questionable for Caesars Entertainment. The company had $2.0 billion in EBITDA in the last 12 months and has $18.8 billion in net debt. That means the company’s debt is worth 9.4 times EBITDA. With this sale, even if it pays down debt with the proceeds, Caesars will increase its leverage and reduce its enterprise value/EBITDA ratio.
Caesars is known for using cash to pay down debt. They just seem to always renegotiate to push the debt off into the future. The company line says that the money will be used to grow Caesars Entertainment.
“The sale of this property exemplifies our strategy to maximize returns from our mix of assets through investments in new markets as well as occasional divestitures,” he said. “We are committed to expanding our distribution network into growth markets that have the potential for high returns.”
I never believe the company line and I call BS. It doesn’t mean I’m right, I just don’t believe that selling an asset for cash below market value was necessary to make a small acquisition.
I’m sure that all of these companies have ties, but it’s interesting that:
Deutsche Bank Securities Inc. served as financial advisor to Caesars Entertainment on this transaction.
Beyond the sale of Caesars St. Louis is the fact that rumors about Playboy Club opening at Cosmo later this year persist. While nothing is confirmed, I always believe that where there’s smoke there’s fire. Maybe this is coincidence, maybe it’s not.
London Club International, part of Caesars Entertainment Corp., launches the Playboy Club in London. The new gaming and entertainment venue will feature a restaurant, lounge, members club, table games and high-limit salon prive gaming rooms.
Las Vegas seems to be the market that is earning Caesars the most revenue, so why not continue to load up on the city.
In a conference call with analysts following the earnings release, Caesars Chairman and CEO Gary Loveman said there were positive results across its portfolio of Strip-area resorts, which include Caesars Palace, Planet Hollywood, Harrah’s Las Vegas and the off-Strip Rio.
Net revenue for the company was up 0.4 percent, to $2.23 billion. Revenues from the Strip grew 10.3 percent, to $786.4 million.
Put all of this together and there is a distinct possibility that the Caesars empire grows in Las Vegas. It’s hard to ignore the following:
- $610 million cash on hand by the end of the year.
- Cosmo going on sale in 2013.
- Deutsche Bank helping Caesars gain the cash.
- Playboy partnership + Cosmo link.
- Las Vegas carrying Caesars.
This is just me putting 1+1+1+1+1 together to put Caesars in the mix. There are a lot of reasons that MGM Resorts International buying the property makes sense, but they’ve been very quiet if they’re making moves.
All signs point to Cosmo becoming a Total Rewards casino. I welcome that.
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I don’t see Caesars buying Cosmo unless they get rid of one of their Vegas properties, so cue the Rio sell-off rumors yet again. I wouldn’t be surprised if we see them make another deal with Penn National involving one of CET’s AC properties (Showboat?) and perhaps another Harrah’s property in the Midwest.
That’s all very possible, although I can’t imagine anyone buying an AC property unless it’s for sale for 10 cents on the dollar – which is entirely possible.