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The M&A Wave Might Hit Casino Stocks: Here’s Why

Zacks

The casino industry has not seen many merger and acquisition (M&A) deals of late, apart from a few sporadic transactions.

Notably, big casino companies like Las Vegas Sands Corp. LVS and Wynn Resorts Ltd. WYNN have been refraining from investing in small properties and focusing on large resorts. These companies are also staying away from venturing into small cities as it will not add much to their bottom line.

However, by merging operations, the regional players in the casino space could opportunistically expand their regional gaming platform and recognize benefits of scale, ever-increasing long-term strategic and financial flexibility, and drive shareholders’ value.

Recently, Eldorado Resorts, Inc. ERI reached an agreement to buy regional gaming operator Isle of Capri Casinos, Inc. ISLE. This has raised possibilities of a consolidation wave hitting the regional players in the casino industry.

GAMING Industry Price Index

GAMING Industry Price Index


Deal Details

The total value of the deal between Eldorado and Isle of Capri stands at $1.7 billion, including the latter’s long-term debt of $929 million.

Following the development, Isle of Capri shares rallied over 30% in yesterday’s trading session. Notably, Eldorado will pay $23 in cash for each share of Isle of Capri or 1.638 shares of Eldorado common stock, which is at a premium of approximately 36% to Isle of Capri’s closing price as on Sep 16, 2016.

The deal is expected to close in the first quarter of 2017. Upon completion, Isle of Capri shareholders will own about 38% of the combined entity’s outstanding shares. Meanwhile, the combination of Eldorado and Isle of Capri is likely to create a regional player with 20 casino-resorts across 10 states.

Bottom Line

The bringing together of assets, management, personnel and other resources of the two organizations helps in creating sizeable near- and long-term synergies by expanding the scale and diversifying the reach of operations.

Boyd Gaming Corporation BYD, Red Rock Resorts, Inc. RRR, Monarch Casino & Resort Inc. MCRI and Golden Entertainment, Inc. GDEN are some of the other popular regional players in the casino space. Notably, all these four stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thus, given the benefits, we might see a flurry of merger deals among the regional players in the casino space, going forward.

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