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MGM and Caesars to Merge?

Ryan Knuppel

About two weeks ago, the talks about a possible merger appeared between Caesars Entertainment and Golden Nugget. This did not last long, as the officials at Caesars immediately denied that and stated that it was only a rumor. Shortly after that, we are facing another rumor that could possibly be true – Caesars and MGM. Reportedly, MGM started trying to negotiate a deal with Caesars in order for the two companies to become one big conglomerate. New York Post reported that MGM is doing everything they could in order to negotiate a deal with Caesars. One of their actions includes hiring the financial company Morgan Stanley as well as hiring a very popular law firm called Weil, Gotshal, and Manges. These companies are supposed to make a feasibility study on the merger that would possibly happen between MGM and Caesars. Nevertheless, it is all still labeled as rumor since no official offers have been made by MGM.

Caesars is an interesting company since 25% of it is a property of hedge funds operators such as Canyon Partners. Curiously enough, Canyon also holds a stake in the company that wants to merge with Caesars. Their goal for a long time was to merge the two giants and they believe that the CEO of Caesars Mark Frissora will agree to do that in February. Chaney Sheffield is a former employee of Morgan Stanley and an investment banker who is now responsible for the lodging and gaming investments of Canyon Partners. Reportedly, he has been very active on the MGM/Caesars case according to some of the sources that are closely related to the company. Allegedly, this deal would help save the overhead and marketing expenses. The thing with Caesars is that their performance wasn’t at its best since the beginning of this year. They practically emerged from bankruptcy and got off to a good start. Nevertheless, their shares are down by 25% once again and the main guy to blame for the poor performance is Frissora since he had a very aggressive expansion plan which made the investors think twice and cut Caesars budget.

MGM Successful

On the other hand, MGM seems to be doing pretty well. They are worth at the moment approximately $30 billion. Caesars is worth only around $4.5 billion right now. If two of the companies were to merge into one, they would be the largest company in Las Vegas and Atlantic City. In fact, they would control almost half of all hotel rooms in these cities. This could be a big problem for gaming regulators. It would not be seen as a monopoly, but it would still be considered a huge advantage over other casinos in these two cities. However, everything is still just a big rumor and we are yet to see whether something is going to happen or not. It would certainly be very interesting to follow closely what the outcome will be.

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