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Gambling911.com has all your latest casino news, both online and brick and mortar, as it happens for Wednesday November 20, 2019.
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Eldorado Will Need to be Dezombifying a Zombie
A "zombie company" is defined as “a publicly traded firm that’s 10 years or older with a ratio of earnings before interest and taxes to interest expenses of below one”.
From CalvinAyre.com:
Theoretically, these companies could liquidate assets, raise cash and try to shrink themselves down to something more manageable. That would be like cutting away the zombie rot and continuing on whatever healthy tissue was left, if any. Imagine how pissed off shareholders would be if any zombie company actually did this when interest rates were so low they could have paid off their shareholders and just kept going. Zombie companies are responsible to shareholders, and shareholders do not like it when their investments go sour.
Also according to the BIS, zombies account for 12% of all public firms today.
When it comes to zombie companies in the gambling sector, Caesars stands out among the biggest.
Last week, Eldorado Resorts shareholders voted overwhelmingly to approve a June deal that would see Eldorado, an actual healthy company making money consistently and growing, take on all the assets and liabilities of this zombie.
Eldorado CEO Tom Reeg claims $500 million in combined synergies post closing in the company’s latest conference call.
“…there’s a tremendous amount of inefficiency in their system and it’s very difficult to target the local customer from thousands of miles away. So as an example, it takes them considerably longer, let’s say, somewhere between 2 and 3x as longer for them to produce direct mail to their customers than us. That’s really a function of all of the sausage making that it has to go through. I will tell you that at the — that one piece is marketing, another other piece is the food and beverage operations, that we take a different tack than they do.”
More from CalvinAyre.com:
As for Eldorado’s workforce, it is only about 18% unionized for a total of 3,400 people, so right now it’s manageable. It will be less manageable with Caesars because most of its unionized work force is food and beverage workers, specifically where Eldorado sees inefficiencies. It’s hard to restructure a business when you’re dealing with unions that can get vocal and even violent. If you need to hire different people or change the way things are done or just downsize, prepare for a big battle.
A combined Eldorado-Caesars could keep zombieing along for a few years yet. It all depends on when the next credit crisis hits.
- Jordan Bach, Gambling911.com
