* New entity to improve company's capital structure
* To include online business, Planet Hollywood casino
* Apollo and TPG intend to invest total of $500 mln
* Shares rise 34 percent
By Greg Roumeliotis and Siddharth Cavale
April 23 Casino operator Caesars Entertainment
Corp said it would spin off assets, with buyout firms
Apollo Global Management LLC and TPG Capital LP
investing $250 million each in a new business free from the
shackles of the company's debt.
The deal could raise up to $1.2 billion for Caesars, which
was taken private by a consortium led by the two private equity
firms in 2008 for $30.7 billion, went public last year, and is
struggling to cope with a debt mountain in excess of $24.1
Caesars shares leaped 34 percent after the announcement to a
one-month high of $16.76 as investors welcomed the terms of the
Caesars said on Tuesday it would retain majority ownership
of a newly created entity, Caesars Growth Partners LLC, that
will raise cash from TPG, Apollo and existing Caesars
shareholders to buy assets from Caesars.
Caesars Growth Partners will own the company's online
business, Caesars Interactive Entertainment, as well as the
Planet Hollywood Resort & Casino in Las Vegas, and Caesars'
interests in the Horseshoe Baltimore casino under development.
"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," Caesars Chief Executive Gary Loveman said in a
TPG and Apollo currently own about 70 percent of Caesars.
The valuations of their funds have suffered as a result of their
investment in the company, which has been burning cash to
service its debt load while struggling to recover from a slump
in gambling revenues bought about by the 2008 financial crisis.
Caesars is now trying to position itself for a boom in
gambling on the Internet. The legalization of online gambling in
New Jersey this year, following similar legislation by Nevada
and Delaware last year, is expected to persuade other U.S.
states to change their laws.
"Maybe there's some benefit to raising additional capital to
grow the online division, but have the prospects changed? No.
The casino market is saturated. Caesars has terrible returns,
about 3 percent return on invested capital, versus 30 percent by
Asian operators," said Chad Mollman, an analyst with
Caesars is expected to own as little as 57 percent and as
much as 77 percent of Growth Partners depending on the amount of
proceeds raised through the sale of shares, and will receive a
call option that allows it to repurchase all of the economic
interest and control of the assets in the future.
Growth Partners will get $500 million from Apollo and TPG.
If all subscription rights are exercised by Caesars
shareholders, Growth Partners should receive about $1.2 billion,
the company said.
Caesars will contribute to Growth Partners its ownership of
Caesars Interactive Entertainment and approximately $1.1 billion
face value of senior notes issued by a Caesars subsidiary.
The value of the assets to be contributed or sold was
evaluated by a valuation committee of three of Caesars'
independent directors, Caesars added. The valuation committee
received financial advice from Evercore Partners and legal
advice from Morrison & Foerster LLP.