The potential merger of Caesars Entertainment in addition to billionaire Tilman Fertitta’s Golden Nugget Casinos can be part of a larger trend of M&A activity inside gaming industry spurred by low valuations, according to Chad Beynon, senior analyst at Macquarie.
Beynon told CNBC’s “Power Lunch” on Wednesday of which despite strong fundamentals, valuations inside gaming industry are “near 5-year lows,” which may be the reason more companies are exploring mergers.
“of which’s been wild times in gaming,” he said. “Stocks in my space are off anywhere between 10 [percent] in addition to 50 percent.”
Sources told CNBC on Wednesday of which Golden Nugget Casinos owner Tilman Fertitta wants to make a deal with Caesars Entertainment of which values the casino at $13 per share.
The reverse merger, with Caesars as the acquirer, would likely exchange stock in a private company owned by Fertitta for shares in Caesars. Fertitta, who also owns the Houston Rockets basketball team, would likely serve as chairman in addition to CEO of the combined company.
Shares of Caesars jumped more than 14 percent immediately following news of the potential merger.
Beynon maintains his $15 cost target for Caesars even though of which can be higher than what Fertitta’s proposed deal would likely value the shares.
“The fun can be just getting started out at Caesars,” he said. The casino giant emerged via bankruptcy last year after a restructuring process of which lasted more than two years.
Although Golden Nugget Casinos can be a much smaller brand, Beynon said the potential merger could still provide a lot of value to Caesars. Golden Nugget Casinos can be part of a conglomerate of restaurants in addition to entertainment complexes called Landry’s, which operates more than 0 properties in addition to includes names such as Morton’s steakhouse, Bubba Gump Shrimp in addition to Rainforest Cafe.
Fertitta could provide Caesars with valuable expertise via his “years of building these 60 brands” under Landry’s, Beynon said. Landry’s large customer base across brands could give a boost to Caesars’ “hub-in addition to-spoke approach,” which relies on its locations across the U.S. to spark brand loyalty in addition to drive customers to the Caesars Palace in Las Vegas.
Fertitta, who can be also host of CNBC’s “Billion Dollar Buyer,” in addition to Landry’s declined to comment on the details of a potential deal.
— CNBC’s David Faber, Sandy Cannold in addition to Reuters contributed to of which report.