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China’s GIG, according to reports from Reuters, has won an initial auction process and been given an exclusive period in which to negotiate the purchase of CIE.
CIE is 50 percent owned by Caesars Acquisition Company (CAC) and 50 percent by Caesars Entertainment, the main parts of Caesars which are not involved in the voluntary bankruptcy proceedings of Caesars Entertainment Operating Company (CEOC).
The unidentified source who released the news to Reuters said that the bid would not include CIE’s WSOP assets. Caesars could still opt to sell them to another buyer, but more likely they will remain in some part of the Caesars group.
WSOP.com New Jersey and Nevada, plus the WSOP brand contribute only a small proportion of CIE’s revenues which mainly come from online social gaming.
The Q1 financial report from CAC reported that CIE had total revenues of $227.8 million, of which only $9.6 million—4.2 percent—came from “WSOP and online real money gaming.”
The social gaming business of CIE, which has experienced explosive growth over the last few years, is a natural fit for GIG. CIE’s real money poker businesses are not.
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The price that GIG will have to pay to acquire CIE is reported to be in the region of $4 billion. The current stock market value of CIE owner CAC is only $1.55 billion.
If CAC receives $2 billion for its 50 percent stake in CIE, then at the current share price, the market is valuing CAC’s other business at a negative $450 million.
While CEOC is going through bankruptcy proceedings that have been hotly contested by the company’s creditors, the rest of Caesars has taken all the corporate measures it can to avoid being dragged into bankruptcy alongside CEOC.
Caesars Entertainment and CAC agreed to a merger in December 2014. On July 11 this year, they “amended and restated” the agreement following discussions with their major shareholders, Apollo Global Management, LLC and TPG Capital, LP.
Much of the corporate activity has been driven by Robert E. Gerber whom Caesars Entertainment appointed as its Chief Restructuring Officer (CRO) in May this year.
He has to cope with finding ways to help CEOC make a deal with its creditors over more than $20 billion of debt. There are also legal claims for damages that could add another bill of around $5 billion.
Former Watergate lawyer Richard Davis was appointed by the bankruptcy court to examine whether Caesars stripped assets from CEOC leaving it incapable of paying its creditors.
“The simple answer to this question is ‘yes’,” said Davis in the introduction to his 80 page report.
He made an estimate of the potential damages that had at least a 50 percent chance of being awarded against Caesars and came up with a number of between $3.6 billion and $5.1 billion.
A sale of CIE to GIG would definitely bring in badly needed cash to Caesars, but even the substantial price of $4 billion leaves the rest of Caesars struggling to continue as a going concern.
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