U.S. casino giant Caesars Entertainment announced it will split itself in two on Tuesday, transferring growth-focused assets including Caesars Interactive to a new venture to raise as much as $1.2bn.
Union Gaming analyst Bill Lerner said the new venture, into which Caesars’ owners Apollo Global Management and TPG Capital will invest $500m, will give Caesars Interactive a valuation of around $400m to $600m.
Freed from Caesars’ $20bn debt burden, Lerner said the new Caesars Growth Partners venture would enable the group to “pursue growth opportunities with fewer restrictions.”
“A potential criticism is that it undervalues Caesars Interactive, however, since operating metrics are unclear it’s challenging to back into a market multiple on the purchase,” he added.
Caesars spokesman Gary Thompson declined to comment on Lerner's valuation range, but added: "We will disclose a more specific valuation for CIE at some point in the future."
Caesars does not break out interactive results, instead including them in the “managed, international, corporate & other” unit that made revenues of $826.7m in 2012.
Shares in Caesars rose 27 percent to close at $15.90 in New York on Tuesday and lifted a further 3 percent to $16.43 on Wednesday.
Caesars Interactive offers real-money online gaming in the UK, and operates some of the most popular social games including Slotomania worldwide.
Nick Batram, an analyst at Peel Hunt in London, said Caesars’ move makes “strategic sense” given the direction of online gaming in the U.S.
London-listed 888, which has deals to supply Caesars with online poker and casino in the U.S., is unlikely to see a change in its day-to-day dealings with the company, Batram said.
“But if the valuation of that business [Caesars Growth Partners] is extremely high, and 888 start generating some real revenues from Caesars in the U.S., that could well provide an interesting valuation benchmark,” he added.
Caesars expects its casino and World Series of Poker brands to dominate in New Jersey — an online gaming market that GamblingData has estimated will be worth up to $463m in its fourth year.
Caesars Growth Partners also intends to use $360m to take equity in the Planet Hollywood resort in Las Vegas and interests in the Horseshoe Baltimore casino project that is under development.
Last month, Caesars treasurer Eric Hession flagged that the company was drawing up a “very creative and effective solution” to its debt burden.
He told analysts the company was in talks with TPG and Apollo to split Caesars into two vehicles — one equity financed, the other with “significantly more debt financing on its side.”
Caesars chief financial officer Donald Colvin added on the same call: “More sources of capital when you look at our balance sheet is a positive, gives us more flexibility.”
He said the extra financing and improved access to equity markets would help finance opportunities that Caesars may not currently be able to afford, and gain access to lower costs of capital.
Caesars Interactive will be “valued independently by the independent directors of our board, advised by their own independent lawyers, and advised by an independent investment bank,” Colvin added.
Announcing the spin-off on Tuesday, Caesars chief executive Gary Loveman said: “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.”
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