Lawyers investigating Caesars merger

Lawyers investigating Caesars merger

Monday, December 22, 2014 Totally Gaming

A law firm has opened an investigation into Caesars Acquisition Company's (CACQ) planned merger with Caesars Entertainment Group (CEC).

The stock-for-stock merger was announced earlier today (Monday) as Caesars Entertainment Operating Co (CEOC), the main operating unit of CEC, seeks to find a solution to its crippling $18.4bn (€15bn) debt.

Under the terms of the deal, which is subject to regulatory approval, CEC shareholders will own about 62 percent of the combined company, while CACQ shareholders will own about 38 percent. The deal was announced as CEOC announced that it would file for Chapter 11 bankruptcy protection by mid-January 2015.

However, while shares of CEC rose 9.7 percent in premarket trading Monday and shares of CACQ surged 11 percent, US shareholder rights law firm Johnson & Weaver announced that it is investigating whether members of the board of directors of CACQ breached their fiduciary duties in connection with the planned merger.

Johnson & Weaver pointed out that under the terms of the agreement, each outstanding share of CACQ class A common stock will be exchanged for 0.664 share of CEC common stock. The exchange values CACQ at $8.96 based on the December 19, 2014 closing price.

A Johnson & Weaver statement read: "The investigation concerns whether CACQ board failed to satisfy their duties to the company’s shareholders, including whether the board adequately pursued alternatives to the acquisition and whether the board obtained the best price possible for the company’s shares of common stock.

"One Wall Street analyst has a $15.00 price target on the stock. Earlier this year CACQ stock traded at $16.98 per share."

The combined company will have a market capitalisation of $3.2bn, based on Friday’s closing, and a combined cash balance of $1.7bn, Caesars said on Monday. 

CEOC said that its proposed bankruptcy will reduce debt to $8.6bn, and is to take place after it reached a deal with all members of the first lien note-holder steering committee on Friday.

Caesars is trying to arrange a pre-packaged bankruptcy that gives its private equity owners a chance to still make money by giving them ownership in two recently-created subsidiaries that will not be part of the Chapter 11. These two companies are an operating entity and a publicly-traded real estate investment trust (REIT) that will own a newly-formed property company.

Gary Loveman, chairman of CEOC, said: “The planned restructuring of CEOC will allow us to establish a strong and sustainable capital structure for CEOC and maximise value for our stakeholders."

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