How would Fertitta’s holdings fit with bid for Caesars merger?
Deal would include restaurants, possibly hotel and entertainment venues
Over more than three decades, Tilman Fertitta has taken his Houston restaurant, hospitality and entertainment empire from a private company to a public one, and then private again. Now, the head of Landry’s could again find himself at the helm of a much larger publicly traded company if a deal to combine with Caesars Entertainment Corp. is successful.
Fertitta recently approached Caesars about merging his Golden Nugget casinos and restaurant properties with the Las Vegas company, sources familiar with the proposal said this week.
But aside from the casinos — Fertitta owns five Golden Nugget properties — it remains unclear which restaurants would be included in the deal and if any of the hotels or entertainment venues would be part of the merger.
In a report to clients, the Atlanta investment bank SunTrust Robinson Humphrey cited the limited details of the deal but said roughly 60 percent of Fertitta’s earnings come from its restaurants. It said such a combination “has not been widely tested in public markets.”
”While we don’t doubt a smart and successful operator like Mr. Fertitta in his ability to successfully run (Caesars), we note he would be transitioning from leading his wholly owned private gaming/restaurant business to a much larger gaming enterprise with various stakeholders,” Humphrey said.
Fertitta, now president, chairman and CEO of Landry’s Inc., built a business on casual seafood restaurants, which he parlayed into a company with massive real estate
holdings and retail establishments. Landry’s Inc. owns and operates more than 600 dining, hospitality, entertainment and gaming properties.
Its vast array of restaurant chains include Bubba Gump Shrimp Co., Morton’s The Steakhouse, Landry’s Seafood, McCormick & Schmick’s, Mastro’s Restaurants and Rainforest Cafe. Affiliated entities own and operate five Golden Nugget Hotel and Casinos and numerous other hotel and entertainment developments.
The proposed deal is what’s referred to as a “reverse merger,” but it differs in some aspects from how this vehicle is usually employed. Reverse mergers are a way for private companies to go public without going through an initial public offering, or IPO.
In a typical reverse merger, a privately held company acquires a public shell company for the sole purpose of becoming publicly traded. In this case, however, the deal would essentially merge two well-established corporations, with Caesars acquiring the closely held Golden Nugget — and its debt — in an exchange of stock that would ultimately give Fertitta control of a larger enterprise with greater access to capital. The deal values Caesars shares at $13, sources said.
Another element that would be part of the deal is a “Dutch tender” in which he company would offer existing shareholders an opportunity to sell their stock up to a certain amount.
Barry Jonas, a gaming analyst at SunTrust Robinson Humphrey, said the deal could benefit both companies during a particularly challenging time for Las Vegas’ casino industry. Operators there have seen revenues slide this season as the city becomes more expensive and competition in other markets intensifies.
He expects Fertitta’s stature and experience to appeal to Caesars shareholders frustrated by a persistent slump in the company’s share price. Four of the five Golden Nugget locations operate near Caesars properties, presenting opportunities for cross-marketing and cost savings, Jonas said.
If the companies combine, Caesars would control about 40 percent of the gaming market in Atlantic City because of overlap. That could draw antitrust scrutiny from federal regulators or state gaming agencies, said Brian Egger, senior gaming and lodging analyst with Bloomberg Intelligence.
For Fertitta, the merger provides the opportunity to grow his Golden Nugget enterprise by buying into a far larger brand, Jonas said. Caesars had a stock market value of roughly $6.3 billion before its share price shot up on news of the potential merger, while Fertitta’s businesses last year had sales of $3.5 billion and debt around $4.3 billion, according to Bloomberg.
“To take it to the next scale” Jonas said, “I think you have to access the public market.”
Jonas added that taking the helm of a large public company might prove challenging for Fertitta, who has been the sole shareholder of Landry’s since taking it private in 2010.
“He’ll have to deal with a vocal group of hedge funds and mutual funds that aren’t afraid to make their views known,” he said.
The combined company would be called Caesars, but the Golden Nugget brand would continue, sources familiar with the proposal said . The companies have declined to comment.
After taking over Landry’s in the 1980s, Fertitta took it public in 1993. In the following years, the company acquired more restaurants and completed the development of the Kemah Boardwalk, a 35-acre restaurant and entertainment destination on the edge of Galveston Bay. Other projects include the San Luis Resort, the Galveston Island Convention Center, a Galveston Hilton and a Holiday Inn, and the downtown Houston Aquarium.
Landry’s purchased the Golden Nugget Hotel and Casino in downtown Las Vegas in 2005. The acquisition included a casino in Laughlin, Nev. The company has since opened three additional Golden Nugget locations in Atlantic City, N.J., Biloxi. Miss., and Lake Charles, La. Each Golden Nugget houses multiple Landry’s restaurant brands.
In 2010, Fertitta took Landry’s private by purchasing all of its outstanding stock, gaining sole ownership of the company.
His most recent developments include the Historic Pleasure Pier, a theme park built over the water off Galveston Island, and a highend hospitality complex next to the Landry’s corporate headquarters on the West Loop near Post Oak Boulevard. The project includes several restaurants, including the first Mastro’s in Texas, a $350 million hotel and high-end conference center.