Icahn Appoints Two Directors to Caesars’ Board: Strategies for Enhancing Value

Ownership: 1.15%

Average Cost: N/A

Activist Insight: Carl Icahn is a legendary figure in shareholder activism, renowned for advocating for shareholder rights and corporate governance. Over his extensive career spanning more than six decades, he has proven his ability to enhance value within companies, particularly in the gaming sector. His notable past ventures include acquiring the Stratosphere casino in 1998, revitalizing it, and later selling it for over $1 billion. In 2008, he seized a stake in the bankrupt Tropicana, orchestrating a turnaround and selling it for $1.85 billion in 2018. Icahn became involved with Caesars in 2019, impacting key leadership decisions and assisting in the merger with Eldorado Resorts.

This latest involvement marks another chapter in Icahn’s ongoing relationship with Caesars. In early 2019, he expressed the need for a strategic review of the company, hinting that a sale could represent the best approach for enhancing shareholder value. Following several board adjustments and leadership changes, he supported Caesars’ merger with Eldorado in 2020.

Since this merger, the company has actively worked to improve its financial position through various strategic maneuvers, including divestments and technological advancements in digital gaming. While some initiatives have thrived, others have struggled to deliver expected outcomes. The stock price once soared to over $119 per share in October 2021 but has since dropped, even as revenue has increased from $9.6 billion to approximately $11.2 billion. This discrepancy in performance has prompted Icahn to view the current valuation as advantageous.

The recent agreement aims to enhance corporate governance, with Icahn emphasizing the need to focus on maximizing shareholder value. He noted an interest in exploring strategic alternatives, particularly for the rapidly growing digital segment of the business.

As of 2024, Caesars Digital has reported significant revenue growth, contributing $1.16 billion to the company, reflecting a 19.5% increase from the previous fiscal year. It is projected to continue its upward trajectory, contrasting with the more static performance of the traditional gaming sectors, which have shown recent revenue declines. This divergence suggests that the digital and brick-and-mortar segments may require different strategic approaches for valuation and growth.

By potentially spinning off Caesars Digital, a pathway to unlocking substantial value could emerge. Caesars currently trades at 8.43 times EBITDA, while digital competitors command significantly higher multiples ranging from 15 to 25 times. Estimations place the future value of Digital’s adjusted EBITDA at approximately $4.6 billion to $7.6 billion, a considerable sum representing a more significant portion of the company’s total enterprise value than its current market position indicates. This separation may not only better align the valuations but also diversify investor choices between traditional and innovative gaming avenues.

Carl Icahn’s depth of experience within the casino industry positions him as a formidable ally in navigating these transformative opportunities. His hands-off approach towards management allows for creative strategies that could yield beneficial outcomes for shareholders. The evolving landscape of interactive gaming necessitates that companies adapt effectively, and Icahn’s involvement could prove pivotal in ensuring Caesars remains competitive.

Ken Squire, known for his expertise in shareholder activism and investment strategies, highlights the significance of Icahn’s role in Caesar’s future direction.