China Gaming Giant Considers Caesars Interactive Gaming Unit Purchase

News has broken that cash-strapped Caesars Entertainment is in ongoing discussions to sell its Caesars Interactive Entertainment [CIE] online-gaming unit to a Chinese investment consortium that includes Giant Interactive Group Inc., one of China’s largest online-gaming firms.  According to information leaked from within the companies involved to prominent market and investment outlets, the Chinese investment group has been granted a short-term exclusivity window to formalize an offer for most of  CIE, for a reported purchase price of about $4.2 billion.

caesars-ent-logoNotably, the prospective deal would not include the World Series of Poker, a brand owned within the CIE portion of Caesars’ complex corporate structure, nor the WSOP’s slowly growing online operations.  Instead, the possible purchase would include CIE’s expanding social-gaming offerings.  Brands within the social-gaming portion of CIE include Playtika, Slotomania and Bingo Blitz.

Overall, CIE has become one of Caesars’ most profitable entities, showing significant gains on a year-over-year basis.  CIE is projected to post an EBITDA (earnings before interest, taxes, depreciation and amortization) of more than $360 million in 2016.  Even with the extraction of the WSOP-branded properties from that projected amount, CIE thus remains an inviting corporate target.

The possible cash infusion also represents a very significant development in the disputed and ongoing bankruptcy proceedings concerning another Caesars’ entity, Caesars Entertainment Operating Company [CEOC].  The parent company’s complex plans to put most of the company’s excessive debt load into the CEOC unit have been met with legal challenges, and at least a partial unraveling of the CEOC bankruptcy filing and overall reorganization remains a strong possibility.

Caesars, in fact, just announced an important “amended and restated” merger agreement in connection with its overall corporate reorganization and CEOC bankruptcy.  The reworked agreement is part of a court-incentivized plan to work closely with the junior creditors who led the legal challenge to the terms of the initial CEOC filing.  According to a recent Caesars’ statement on that matter, “Caesars Entertainment and CEOC are encouraged by the recent progress made with key creditor groups, and are pleased with the support received to date for CEOC’s Plan of Reorganization. Caesars Entertainment and CEOC are continuing to engage with remaining creditor groups to achieve consensual agreements, and look forward to commencing the voter solicitation process.”

A confirmation hearing for CEOC’s ongoing reorganization has now been set for January of 2017.

The possible case infusion from the sale of most of the CIE unit obviously has a significant impact on those reorganization discussions.  However, both Caesars and the China-based investment group are less open about the ongoing talks.  Neither side has issued a formal statement to date, nor is it known how long the reported exclusivity window will last.

The Giant Interactive Group-led consortium, which features billionaire Shi Yuzhu, also controls such well-known brands as Hasbro and Netmarble, the latter being a South Korea-based online-gaming company.  Giant Interactive is itself a privately-owned group that was acquired in 2014 for about $3 billion by portions of the same investment group now interested in the CIE acquisition, including Yuzhu and Baring Private Equity Asia Ltd.

Caesars’ stock price has held steady on the announcement of the possible purchase offer.  Such a sale could allow for a further restructuring of the company’s land-based assets and brands, allowing for the divestiture of some unprofitable properties while allowing the corporation to keep some of its iconic brands, including the WSOP, as a part of its forward-looking operations.

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