Carl Icahn Acquires New Shares in Caesars, Eschews Activism
Shares of Caesars Entertainment (NASDAQ: CZR) soared on Friday as it was discovered that Carl Icahn has constructed a significant position in the gaming stock.
In late trading, Caesars' stock, the operator of Harrah's, has surged by 11% with trading volumes exceeding five times the daily average. This resulted in a 18% increase in the stock price prompted by news of Icahn's stake. This unfolding event places Caesars on its best intraday performance in the past 18 months.
Icahn expressed his admiration for the company and said, "I like Caesars, and I own some stock. I would never do activism at Caesars,” during an interview with CNBC's Scott Wapner.
Unfortunately, the specific size of Icahn's position is currently unknown. During the interview, Wapner disclosed that Icahn might regard his stake as not large, but "large" is a relative term for investors like Icahn. The full extent of his investment will become clearer when Form 13F filings for the second quarter are released, which is anticipated to occur sometime in late July or August.
A Familiar Partnership
Despite Icahn expressing that he doesn't plan for activist moves with Caesars, he shows a history of engagement with the company.
In 2019, Icahn Enterprises acquired a roughly 10% stake in "old Caesars," positioning him as the orchestrator of the subsequent $17.3 billion merger with Eldorado Resorts – the transaction that formed "new Caesars." The new management team, led by Eldorado's CEO Tom Reeg, holds power at Caesars. Icahn is known to have considerable respect for Caesars' current management team, including Reeg, and this likely played a part in his decision to invest in the company again.
Icahn has earned a reputation as one of the most successful and well-known activist investors. As a general rule, when these investors become involved in a company, they typically push for significant changes such as board seats, asset dispositions, or even full-blown sales.
It's possible that Icahn may transition from a passive to an active investor in Caesars in the future. However, based on the available information, his renewed enthusiasm for the stock appears to be driven by it being a value investment and the fact that the Las Vegas Strip is continuing to experience robust demand. Caesars, the second-largest operator on the Strip, has been recommended as a value idea by other professional investors.
A Lengthy History in the Gaming Industry
Beyond pushing "old Caesars" into accepting the Eldorado acquisition offer, Icahn has had an ongoing influence in the gaming industry, including acquiring two bankrupt Atlantic City operators, Tropicana Entertainment, and Trump Entertainment Resorts.
This demonstrates that he possesses extensive knowledge of the business and could potentially offer valuable assistance to the Caesars management team if needed.
The gaming company has been criticized for its considerable debt load, with a total of $12.436 billion at the end of the first quarter, and some investors have expressed a desire for the company to scale back this debt more rapidly. On the firm's earnings conference call, Reeg highlighted that Caesars is prepared to sell "noncore" assets; however, he didn't elaborate on what these assets entail. He did, though, mention that the company oversees a handful of gaming venues that produce little to no cash and are not essential to its long-term strategies.
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