Eldorado to Pay Caesars $2.3m in Daily Ticking Fees

  • The planned merger was announced in June 2019
  • Eldorado agreed to pay $0.10 per share for every month of delay past the March 25 deadline
  • The company plans to complete the merger in April
  • Eldorado must pay a penalty of $836.8m if the deal falls through
document with title "financial penalty" on a desk
Eldorado Resorts must start paying Caesers Entertainment $2.3m in daily ticking fees after missing an agreed merger deadline. [Image: Shutterstock.com]

Ticking fees mounting up

Eldorado Resorts must pay $2.3m in daily ticking fees to Caesars Entertainment after failing to tie-up their merger by a set deadline.

Negotiations have been ongoing for a number of months, with plans for the merger coming to light in June 2019. As per their initial agreement, Eldorado promised to pay $0.10 per share each month after the deadline date was passed. This nine-month deadline was passed on Wednesday. 

Eldorado promised to pay $0.10 per share each month after the deadline date was passed

Ticker fees of this kind are not usually part of a merger agreement. However, Caesars pushed for this fee structure in return for giving Eldorado an exclusive negotiating period before the merger announcement.

The initial plan by Eldorado Resorts was to have the deal all wrapped up during the second quarter of 2020. At a board meeting at the start of March, Eldorado directors said they hoped to have the deal closed by April 11.

The process of merging

Eldorado made an acquisition offer to Caesars of $12.75 per share. This would be paid through a combination of stock and cash. If this deal gets completed, it would see the new company become the powerhouse of gambling in the US. It would operate more than 60 casinos in the country and be worth approximately $17.3bn.

Regulators in every state in which both of the companies have operations will have to give their approval to this deal before it goes ahead. In recent times, many of these regulators have done so. The Federal Trade Commission will also need to give its approval for this merger.

Coronavirus impact on the deal

There are some concerns that the ongoing coronavirus pandemic may affect this planned merger. Casinos across the US have been shut down for the foreseeable future and casino company share prices have been decimated. 

As well as the ticking fees that will continue to add up, if the merger fails, Eldorado will have to pay a penalty of $836.8m. The CEO of the company, Tom Reeg, is said to be doing all that he can to push this deal through as soon as possible. 

if the merger fails, Eldorado will have to pay a penalty of $836.8m

As part of the initial agreement for the merger, Eldorado cannot cite “public health emergencies” as a reason for exiting the agreement if Caesars is not disproportionally affected in comparison to other casino companies.

Issues with financing

There is also an issue over the institutions planning to help finance this merger. Banks had already agreed to give over $7bn worth of loans to Eldorado to complete this deal. However, it seems that these banks are now having a tough time getting investors to take on this debt amid the pandemic that has seen the hospitality sector massively damaged.

The main banks in question are Macquarie, Credit Suisse, and JPMorgan. If investors are not found, then the banks might have to take a hit and offer deep discounts on the debt or trump up the cash themselves.

Other controversies

It was announced in September 2019 that four leading executives from Eldorado Resorts, including CEO Tom Reeg, were being investigated by the US Securities and Exchange Commission (SEC). This was due to alleged “questionable trading activity” involving a medical device manufacturer called IRadimed Corporation.

The other executives involved were President Anthony Carano, Chairman Gary Carano, and James Hawkins. There were concerns that this investigation could scupper the planned merger.

There were also protests over the planned merger by casino employees in Florida. The Isle Casino Pompano Park is owned by Eldorado Resorts. Workers went on strike because they felt the merger would likely lead to job losses, as well as decreased benefits and wages.