Caesars to spin off its online arm
Restructure will see casino group secure $500m in investment in bid to reduce $20bn debt
Caesars Interactive Entertainment (CIE) will be spun off into a separate company only part-owned by the casino group in a bid to reduce its long-term debt.
The move will see Caesars Entertainment receive a combined US$500m, rising to a potential $1.2bn, in investment from Apollo Management and TPG Capital. The two private equity firms will also be part-owners of the new entity, as the casino group looks to reduce its $20bn debt.
The new division, named Caesars Growth Partners, will include CIE, the Planet Hollywood chain as well as the planned Horseshoe casino in Baltimore. A separate new company, Caesars Acquisition Company, has also been created to oversee the transition and will be headed up by CIE chief executive Mitch Garber (pictured).
“The transaction is an important step in our ongoing efforts to improve the company’s balance sheet and position ourselves to make strategic investments,” said Gary Loveman, president and CEO of Caesars Entertainment in a statement. “Caesars Growth Partners and its simple and flexible capital structure provide us with a vehicle to pursue growth opportunities while retaining a significant portion of the financial upside associated with these assets and projects. The transaction enables us to raise equity capital at attractive valuations without diluting stockholders of Caesars and provides Caesars additional cash liquidity without incurring new debt.”
The casino group is set to own at least 57% of Caesars Growth Partners but this could rise to 77% depending on sale of shares, with Caesars also entitled to a call option on the remaining shares at a later date.
Last September, Fitch Ratings predicted a spin-off of Caesars’ online division could be a “logical precursor to a restructuring”, as it downgraded the casino group from a stable to negative outlook, due to concern over its high debt levels and questions over CIE’s ability to monetise players.
Fitch argued spinning off CIE could avoid the need to extract value out of it and not risk the entity being pulled into the debt restructuring proceedings.
CIE began preparing for online gambling regulation in the US when it signed a B2B deal with 888 in 2009. It also acquired a 51% stake in social games developer Playtika in May 2011 before making it a fully-owned subsidiary by securing the remaining 49% later that year.