Takeaways
- New Jersey regulators will closely scrutinize the market power of the proposed company as it reviews Eldorado’s acquisition of Caesars. As a result of the transaction, Eldorado will hold four of the nine casinos in Atlantic City.
- Long considered the “weak sister” of Atlantic City’s strip, Bally’s Atlantic City - which is owned by VICI Properties and operated by Caesars Entertainment - has been struggling in recent years with underperformance and appears to be a likely target should state regulators insist on a divestiture - or should the new company simply decide to close it.
- Aside from examining the concentration of the gaming market, regulators will also be looking at the number of hotel rooms the proposed company will control, the meeting spaces the entity will possess, and the number of employees the new entity will employ.
- By law, state regulators can reject a transaction because of concentration. “But that’s not a very likely outcome,” said Dan Heneghan, the former public information officer for the New Jersey Casino Control Commission. “They could impose some restrictions or divest one of the properties.”
As Eldorado’s acquisition of Caesars will result in Eldorado owning four of the nine casinos in Atlantic City, state regulators will closely scrutinize whether the transaction will cause undue concentration - which may lead Eldorado to shed Bally’s Atlantic City - multiple sources told Reorg M&A.
The transaction will result in Eldorado owning nearly 44% of casinos on the Atlantic City strip - which may prompt the state regulators to insist on a divestiture when examining the transaction. Long considered the “weak sister” of Atlantic City’s strip, Bally’s has been struggling in recent years with underperformance and appears to be a likely target should regulators insist on a divestiture - or should the company simply decide to close it.
As Reorg M&A previously
reported, Eldorado stated that it anticipated having to “prune” assets in certain markets as part of the FTC review. The company has also noted that it predicts $500 million in savings as a result of the deal - which some consider a conservative amount, says Frank Fantini, CEO and publisher of the gaming research firm Fantini Research. “Bally’s is the weak sister,” he said. “Eldorado has done a great job of acquiring companies and wringing out expenses. Shutting down Bally’s is in keeping with what they do - cutting expenses.”
According to Dan Heneghan, who spent more than 20 years with the New Jersey Casino Control Commission, New Jersey regulators have three areas that they will examine: the suitability of the acquirer, financial stability of the proposed company, and whether the transaction will result in undue economic concentration. Heneghan said the regulators may be most concerned with the concentration element of the deal - as well as the financial stability of the proposed company.
“If you have a player that controls four out of nine properties, the economies of scale could help them from a business standpoint, but do they help the community and do they help the state?” Heneghan asked. “When you [have] four properties and you can consolidate positions, that means you don’t have the same [number of] jobs.”
Likely both the New Jersey Division of Gaming Enforcement and the companies will conduct their own market research with the companies hiring their own expert to investigate and testify on whether the deal would harm the market. Those two reports will be put into evidence and discussed at a public hearing before the commission.
Aside from examining the concentration of the gaming market, regulators will also be looking at the number of hotel rooms the proposed company will control, the meeting spaces the entity will possess, and the number of employees the new entity will employ. By law the regulators can reject a transaction because of concentration. “But that’s not a very likely outcome,” said Heneghan. “They could impose some restrictions or divest one of the properties.”
New Jersey regulators may also impose some conditions on the deal. For example, Caesars has placed restrictions on properties it sold in the past by prohibiting the new owners from using the properties as casinos that would compete with other Caesars’ properties. In 2014, Caesars closed down the Showboat Atlantic City and placed a declaration of restricted covenant on the establishment that prohibited new owners from operating a casino on the property. The Showboat was bought by Philadelphia-based developer Bart Blatstein in 2016 for $23 million and now functions as a hotel.
“So a potential outcome would be for the regulators to say in addition to other conditions, you have to lift the restrictions so you won’t be restricting competition,” Heneghan said.
Reorg M&A’s previous coverage of this transaction can be found
HERE.
--Kathryn Haake