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On Friday May 13, the Wall Street Journal (WSJ) reported that Caesars Entertainment (CE) was considering the sale of Caesars Interactive Entertainment (CIE), the subsidiary which owns the WSOP brand and real money internet poker businesses.
Quoting “people familiar with the matter,” the WSJ said that CE is working with the Raine Group investment bank to evaluate “unsolicited bids that have exceeded $4 billion.”
Bidders are described as including “financial firms and gaming, media and entertainment companies.”
The Caesars Entertainment Operating Company (CEOC) is in what are hoped to be the later stages of a voluntary bankruptcy process. On May 18, CE offered a $4 billion plan to help CEOC exit the process—the acronyms get worse the deeper one digs into the complex structure of the Caesars business empire.
The $4 billion figure looks suspiciously identical to the quoted value of the terms of the CE offer, but in fact there appears to be no relationship between the two deals.
The bankruptcy exit proposal would involve CE merging with the Caesars Acquisition Company (CAC), which is the direct owner of CIE. The merged business will issue $1 billion of convertible bonds to the bankrupt business’ creditors and give them up to 47.5 percent of the shares in the new company.
The combined value of the bonds and equity add up to around $4 billion.
While the deal would remove the threat of the rest of Caesars being dragged into bankruptcy proceedings, it isn’t dependent on the sale of CIE.
CIE is easily the jewel in Caesars’ corporate crown. 2015 annual results reported revenues of $766.5 million, and EBITDA of $282.7 million, both massively higher than the previous year.
Q1 2016 figures for CIE were up 28.8 percent compared to 2015, so there is an argument for the valuation based on the company’s continuing growth prospects. But as a multiple of earnings, $4 billion still seems to be a lot to pay.
Many of the businesses that might be interested in acquiring CIE may not have much interest in its real money gaming operations. That produces the possibility of a two step process, where an acquirer immediately puts the WSOP up for sale as a standalone business.
If this admittedly speculative outcome turns out to be the case, then there could be bidders galore.
The gaming sector is going through a major restructuring as the costs of regulation and operating across international jurisdictions mount. This has created wider interest in the sector, and opened it to a more diverse group of potential investors.
While the industry is probably not yet likely to produce a complete outsider as the new owner of CIE and the WSOP, there is a broad pool of possible candidates.
888 Holdings would almost certainly want to be the owner.
It has a solid footprint in the regulated U.S. online poker market and extensive 888Live tournament operations in the rest of the world. 888 already has licenses to operate in one guise or another in New Jersey, Delaware and Nevada.
It would be a big stretch for 888 to be in the running for buying the whole of CIE, after all, it balked at paying a premium for bwin.party last year. On the other hand, Amaya’s purchase of PokerStars showed that there is institutional money available for this size of transaction if the business case can be made.
CVC Capital Partners could almost certainly put a deal together if it wanted to. It owns SkyBet in the U.K., and has a 35 percent stake in the Formula 1 motor racing brand which is as big in Europe as the WSOP is in the U.S.
Amaya would surely love to own the WSOP brand, but taking on the rest of CIE is probably outside the realms of possibility given its existing levels of debt and corporate uncertainty.
The loss of David Baazov is not quite as important as the fact that it is itself in the process of considering bids. It has neither the financial firepower nor the corporate interest in getting involved in a competitive acquisition process at the moment.
There are several social gaming companies that might want to take a pitch at owning CIE. Zynga has a market cap of $2.26 billion, and could create the growth it is struggling to achieve with the acquisition of CIE.
Now that the merger has completed its first year, CIE could make a sensible addition to the company now known simply as International Game Technology.
What is 99.9 percent certain is that the WSOP will remain in Las Vegas. Not only would holding it anywhere else probably reduce the number of entries substantially, the sheer logistics of the event would make it difficult to host in almost any other environment.
Caesars took over the WSOP in 2005, but it has been played in Las Vegas since 1970. The events bring thousands of visitors to the Strip every year and millions of dollars goes into the local economy.
Holding the WSOP anywhere else is almost unthinkable, regardless of who owns it in 2017.
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