Morgan Stanley on Caesar's (CZR): 'we take no position on the likelihood of a deal closing'

Morgan Stanley on Caesar's (CZR): 'we take no position on the likelihood of a deal closing'.

The analyst comments "Our initial thoughts: While we take no position on the likelihood of a deal closing, the announcement comes after several articles (see here and here) about a potential deal over the last several months. None of the parties mentioned (Tillman Fertitta, Carl Icahn or CZR) commented in response to those reports. We still heard some debate in the investor community about financing potential and strength of interest as time had passed. However, as we outlined in our thoughts when the articles initially were published, Tilman Fertitta has previously purchased developable land on the Las Vegas Strip and we assumed he could potentially see underlying value in CZR's still owned real-estate, which is currently 6 properties. However, we still viewed the key fundamental unlock as being able to return the company to consistent EBITDA growth. More recently, trends have improved in the regions and there are signs of Vegas bottoming, though iGaming trends appear to be decelerating. There is a possibility of another potential bid coming over the top (as outlined by the "go-shop" period) but other than those names given in the WSJ article cited above, we have not seen mentions of any other potentially interested bidders. Read across: Investors may point to the ~7.3x/~7.5x EV/EBITDA and adj. EV/EBITDAR as providing support for valuation across the space (BYD/PENN/MGM currently on average ~6x cons NTM EBITDA & ~7x NTM EBITDAR respectively). Valuation may hinge heavily on underlying real estate value, potential synergies, and/or perceived value around lease negotiations (VICI has a parent level guarantee but the leased regional assets are currently generating minimal EBITDA fully allocated per company disclosures). Of the group, BYD likely has the largest overlap and trades at the most significant discount at ~6.7x/6.8x cons EV/EBITDA / lease adjusted as it owns ~85% of its real estate. By contrast, PENN/MGM own no real estate."

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