Caesars Revives IPO Plan; Market Tough

Private equity-owned Caesars Entertainment Corp. has revived its plans to go public, but with high debt and no casino presence in the booming Asian gambling market it may find its IPO a tough sell, according to sister news service Reuters.

The offering could be prompted by the stong debut earlier this month of daily deals Web site Groupon and comes nearly a year after a heavy debt load derailed an earlier plan by Caesars to raise $500 million. Caesars, one of the largest casino operators in the United States and owner of the famed Caesars Palace, has ducked in and out of the public markets a number of times, under different owners.

In its latest filing with the U.S. Securities and Exchange Commission, on Nov. 15, Caesars said it would look to raise $50 million through its IPO, though the initial amount is typically used as a placeholder and the final amount raised could differ. However, analysts said the company may not find a rush of takers for its shares as the offering faces some of the same concerns investors had last year.

“Its debt will remain a burden, at about 10 times its EBITDA, it is above its peer group,” Sterne Agee analyst David Bain told Reuters. Caesars’ $31 billion leveraged buyout by Apollo Global Management and TPG Capital in 2008 is still haunting the company as it had about $22.51 billion of outstanding debt on its books at September-end. It expects to pay $1.69 billion to service those obligations in the next 12 months.

Even without the debt, analysts feel the dice may not be loaded in the company’s favor. “Casino deals have been a tough sell. We had a Macau IPO, MGM China, and that stock is down. So Caesars will have to price attractively for people to buy,” said Josef Schuster, founder of iPox Schuster, a fund that specializes in investing in newly public companies.

MGM Macau, controlled by MGM Resorts International and Hong Kong billionaire Pansy Ho, made a tepid market debut in June, despite its location in the world’s largest gaming market. Its shares now trade below the IPO price. Though Caesars owns a golf course in Macau, it still lacks a casino in the Chinese enclave that overtook Las Vegas as the world’s largest generator of gambling revenue several years ago.

“We have a pretty negative outlook on the company. They made a strategic blunder when they didn’t apply for a Chinese casino license,” Morningstar analyst Chad Mollman said.

Caesars, which also operates casinos under the Harrah’s and Horseshoe brands, has 52 casinos, most of them in the United States. “They are highly levered to the U.S. consumer. Economic sentiment at the time of its roadshow will affect its valuation,” Sterne Agee’s Bain said.

Bain added that with rivals opening new casinos in New York and Atlantic City, competition for the domestic consumer is heating up. A bright spot for Caesars is its World Series of Poker tournament and brand, which is poised to benefit from the potential legalization of online poker.

As U.S. states scramble for tax revenue, the potential for legalizing online poker has led casino and gaming companies MGM Resorts International and Boyd Gaming to unveil a plan to partner with online poker company Digital Entertainment. The filing did not specify the exchange the company plans to list its shares on, but said it intends to trade under the symbol “CZR.”

(Jochelle Mendonca is a correspondent for Reuters in Bangalore.)