Casino operator and owner Caesars Entertainment (CZR) shares rocketed up Tuesday after the announcement of a separate growth company. Was this new move enough to justify the increase in shares and alleviate investors' concerns about Caesar's debt?
New growth venture Caesars Growth Partners LLC will center around investments from private equity firms Apollo Management (APO) and TPG Capital. The two firms will each invest $250 million in the new venture. Caesars will retain majority ownership in this separate company and will also allow other shareholders to invest in Growth Partners LLC. Caesars ownership stake will be in a range of 57% to 77% depending on other shareholders investment. Total capital is expected to be $1.2 billion.
Caesars CEO Gary W. Loveman had this to say of the new venture,
The transaction is an important step in our ongoing efforts to improve the company's balance sheet and position ourselves to make strategic investments.
Those debt obligations Loveman is talking about are having a huge impact on the company's net earnings. In fiscal 2012, the company reported a loss of $11.95 per share. The current fiscal 2013 year is expected to post a loss of $6.03 per share.
Caesars Growth Partners will include the interactive brands and online gaming assets from Caesars. This could be a huge asset as Las Vegas and New Jersey are both working on new deals to allow legalized gambling online in the regions. The new venture will also include Horseshoe Baltimore, a casino to open in 2014. Caesars Growth will also buy out a partner in its ownership stake of Planet Hollywood in Las Vegas.
The new growth venture could also include investments in new international regions. There are rumors that Caesars will try to strike a partnership in Macau. Caesars also is working on a partnership in Korea to open a casino. Korea could become the new gambling hot spot with a close proximity to Shanghai and Beijing. In fact, Korea is actually closer to these two key cities than Macau is. Caesars has a partnership with Lippo Group. Other Asian countries are also working on legalizing gambling, which could provide new investment opportunities for Caesars Growth Partners.
Caesar's has a large portfolio of properties. Here is a look at them:
· Nevada: Harrah's Las Vegas, Rio, Caesars Palace, Paris Las Vegas, Bally's Las Vegas, Flamingo Las Vegas, The Quad, Bill's Gamblin Hall & Saloon, Hot Spot Oasis, Planet Hollywood Resort and Casino, Harrah's Lauglin, Harrah's Reno, Harrah's Lake Tahoe, Harvey's Lake Tahoe
· New Jersey: Harrah's Atlantic City, Showboat Atlantic City, Bally's Atlantic City, Caesars Atlantic City
· Illinois: Harrah's Metropolis, Harrah's Joliet
· Indiana: Horseshoe Southern Indiana, Horseshoe Hammond
· Iowa: Harrah's Council Bluffs, Horseshoe Council Bluffs
· Mississippi: Grand Casino Biloxi, Horseshoe Tunica, Harrah's Tunica, Tunica Roadhouse Hotel & Casino
· Missouri: Harrah's North Kansas City
· Louisiana: Louisiana Downs, Horseshoe Bossier City, Harrah's New Orleans
· Pennsylvania: Harrah's Philadelphia
· Arizona: Harrah's Ak-Chin
· North Carolina: Harrah's Cherokee
· California: Harrah's Rincon
· Ohio: Horseshoe Cleveland
· Uruguay: Conrad Punta del Este Resort and Casino
· Canada: Caesars Windsor
· England: Area Leeds, Manchester 235, Alea Nottingham, Rendezvous Southend-on-Sea, Rendezvous Brighton, The Casino at the Empire, Playboy Club London, The Sportsman, Golden Nuggest
· Scotland: Alea Glasgow
· Egypt: Caesars Palace Cairo, The London Clubs Cairo-Ramses
· South Africa: Emerald Safari
Along with the extensive list of casinos managed and owned by Caesars, the company has several online ventures and exciting products in the pipeline. In 2013 and 2013, Caesars has three domestic casinos planned in Cincinnati, Baltimore and Nevada.Caesars owns the number one poker brand in its ownership of World Series of Poker.
From a February JP Morgan Conference, Caesars listed its three key drivers as:
- Investments in wholly owned assets with focus on hospitality, expected to drive significant upside
- Minority stakes/ management agreements
- More speculative opportunities
Caesars has over 43,000 hotel rooms, 440 restaurants, and 290 retail shops. The focus on hospitality has added additional restaurants, including those from chef Gordon Ramsay, to increase revenue for Caesars at its properties.
Shares of Caesars closed the day at $15.90, a 27% increase for the day. Shares traded between a range of $4.52 and $18.37 over the past fifty two weeks. Even with the increase, Caesar's has a market capitalization of around $2 billion, which seems small for a company that posted over $8 billion in fiscal 2012 revenue.
This new joint venture could greatly take away the debt problems that Caesars has. I'm also intrigued by the potential in new international markets like Macau and Korea for the new growth enterprise. On April 29th, Caesars will report quarterly earnings and I'm sure more details will be announced. Until then, take advantage of any dips to buy in for the long haul.