Isle of Capri Casinos (NASDAQ:ISLE) and Eldorado Resorts, Inc. (NASDAQ:ERI) announced that they have entered into a definitive merger agreement whereby Eldorado will acquire all of the outstanding shares of Isle of Capri for $23.00 in cash or 1.638 shares of Eldorado common stock, at the election of each Isle of Capri shareholder, reflecting total consideration of approximately $1.7 billion, inclusive of $929 million of long-term debt of Isle of Capri and its subsidiaries. The exchange ratio for stock consideration to be issued in the merger is fixed and was determined based on Eldorado’s 30-trading day volume weighted average price as of September 18, 2016 of $14.04. Elections are subject to proration such that the outstanding shares of Isle common stock will be exchanged for aggregate consideration comprised of 58% cash and 42% Eldorado common stock. The transaction is expected to be immediately accretive to Eldorado’s free cash flow and diluted earnings per share, inclusive of identified cost synergies of approximately $35 million in the first year following the completion of the transaction and giving effect to Isle’s previously announced divestiture of Isle of Capri Casino Hotel Lake Charles. The transaction consideration represents an approximate 36% premium over the closing share price of Isle of Capri on September 16, 2016.
Following the completion of the transaction, Eldorado will benefit from increased operational and geographic diversity as it will add thirteen casino–resorts to its portfolio, for a total of 20 properties in ten states. After giving effect to the completion of the transaction and the sale of Isle of Capri Casino Hotel Lake Charles, the combined operations of Eldorado and Isle would have generated approximately $1.8 billion in revenue for the twelve months ended June 30, 2016. Eldorado’s expanded property portfolio will feature approximately 20,800 slot machines and VLTs, more than 560 table games and over 6,500 hotel rooms. No single market accounted for more than 15% of the combined entity’s Adjusted EBITDA for the twelve month periods ended the last day of the most recent fiscal quarter for each of Eldorado and Isle.
Gary Carano, Chairman and Chief Executive Officer of Eldorado, commented, “The acquisition of Isle of Capri represents a transformational growth opportunity for Eldorado and is a significant milestone in the successful ongoing execution of our long-term strategy to opportunistically expand our regional gaming platform through accretive acquisitions. In the last two years we have created tremendous value for our shareholders as the scale of Eldorado Resorts will grow from two wholly-owned properties and a 50% interest in a third property in two markets in 2014 to 20 properties in ten states after completing the transaction. Financially, the transaction is expected to be accretive to our operating results upon closing. For the twelve month periods ended the last day of the most recent fiscal quarter for each of Eldorado and Isle, the revenues of the combined company were almost double Eldorado’s revenues on a standalone basis and combined Adjusted EBITDA was approximately$400 million, inclusive of the cost synergies we have identified. Strategically, the combination builds the scale of our gaming operations and further diversifies the geographic reach of our operations without any overlap with our existing properties.
“We intend to implement our strategy of focusing on margin enhancement and customer service and experiences across the portfolio by marrying best practices from both companies. Led by our proven gaming, hotel management and food and beverage teams with a long-term record of operating execution and M&A integration we believe that Eldorado Resorts will be positioned for long-term success. Combining the assets, management, personnel, operations and other resources of these two organizations is expected to create substantial near- and long-term synergies.”
Eric Hausler, Chief Executive Officer of Isle of Capri, added, “We are pleased to reach this agreement with Eldorado Resorts, which provides Isle of Capri shareholders with substantial and immediate value, as well as the opportunity to participate in the upside potential of the combined company. The premium value our shareholders will be receiving reflects the culmination of several years of hard work by many dedicated Isle of Capri employees and the determination and guidance of our Board of Directors in creating and driving value. I am thankful for the hard work and dedication of our talented employees, and I am confident they will continue to make many valuable contributions as part of a larger and stronger organization. I look forward to working closely with the Eldorado team to bring our companies together to realize the benefits of this compelling combination and ensure a smooth transition.”
Tom Reeg, President and Chief Financial Officer of Eldorado, concluded, “This acquisition marks further progress toward our goal of strategically expanding our property base to realize benefits of scale, increasing long-term strategic and financial flexibility, and driving shareholder value. Our experience and success over the last two years in integrating the MTR assets and Silver Legacy and Circus Circus operations will serve us well as we add the Isle of Capri assets to our operating base. With our experienced management team, operating discipline and return-focused approach to capital expenditures, we believe the acquisition of Isle of Capri offers a meaningful opportunity for Eldorado Resorts, our shareholders and Isle shareholders. Notably, after giving effect to the transaction, the incurrence of debt to fund the cash portion of the purchase price, transaction expenses, and the expected first year cost synergies of $35 million, we expect our net leverage ratio to be approximately 5.1x at closing. We plan to use the free cash flow expected to be generated by the combined company to reduce leverage and pursue future growth opportunities.”
Eldorado has received committed financing for the transaction totaling $2.1 billion from J.P. Morgan. The completion of the transaction is not subject to a financing contingency.
The transaction has been unanimously approved by the Boards of Directors of both Eldorado Resorts, Inc. and Isle of Capri Casinos, Inc. The transaction is subject to approval of the stockholders of Eldorado Resorts and Isle of Capri, the approval of applicable gaming authorities, the expiration of the applicable Hart-Scott-Rodino waiting period and other customary closing conditions, and is expected to be consummated in the second quarter of 2017. Certain stockholders of Eldorado and Isle of Capri who control approximately 24% and 35% of the outstanding shares of common stock of Eldorado and Isle of Capri, respectively, have signed agreements to vote in favor of the transaction. Upon completion of the transaction, Eldorado and Isle of Capri shareholders will hold approximately 62% and 38%, respectively, of the combined company’s outstanding shares. In addition, subject to mutual agreement by both companies, two members of the Isle of Capri Board of Directors will be designated as members of the Eldorado Board of Directors effective immediately following the closing of the transaction.
J.P. Morgan is acting as exclusive financial advisor and Milbank Tweed Hadley & McCloy LLP is acting as legal counsel toEldorado in connection with the proposed transaction. Credit Suisse is acting as exclusive financial advisor and Mayer Brown LLP is acting as legal counsel to Isle of Capri in connection with the proposed transaction. (Original Source)
Shares of Isle of Capri Casinos jumped this morning, up $5.27 or 31.13% to $$22.20. ISLE has a 1-year high of $21.43 and a 1-year low of $10.62. The stock’s 50-day moving average is $17.80 and its 200-day moving average is $16.16.
On the ratings front, ISLE stock has been the subject of a number of recent research reports. In a report issued on July 1, Deutsche Bank analyst Carlo Santarelli reiterated a Hold rating on ISLE, with a price target of $18, which represents a potential upside of 6% from where the stock is currently trading. Separately, on June 14, Telsey Advisory Group’s David Katz reiterated a Hold rating on the stock and has a price target of $19.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Carlo Santarelli and David Katz have a total average return of 5.8% and 10.5% respectively. Santarelli has a success rate of 59% and is ranked #442 out of 4163 analysts, while Katz has a success rate of 100% and is ranked #2456.
Isle of Capri Casinos, Inc. engages in owning, developing, and operating casinos and hotels, which includes regional gaming facilities; dining, lodging, and entertainment facilities. It operates through the following brands: Isle, Lady Luck, Isle of Capri, Farmer’s Pick Buffet, Farraddays, Jester’s Jam, The Lone Wolf, and Kitt’s Kart.