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Morningstar | MGM to See Minimal Competitive Impact From Eldorado/Caesars Proposed Acquisition; Shares Attractive

Although we think Eldorado’s domestic casinos stand to see around a mid-single-digit revenue uplift from being added to Caesars’ 55 million loyalty program once the acquisition is completed in the first half of 2020, our analysis points to only a handful of Eldorado’s 26 facilities overlapping with just MGM’s Mississippi and Atlantic City properties. Overall, we estimate these regional properties for MGM amount to 10% and 11% of total 2019 EBITDA and sales, respectively, and think these facilities could see an annual revenue impact of around 1% in years 2021-28. As a result, we don’t plan to change our $38 fair value estimate on no-moat MGM and continue to see shares as attractive.

Our analysis shows that Eldorado’s Baton Rouge, Greenville, and Lulu casinos, which are in either Mississippi or Louisiana, are within a 2-hour driving distance of one of MGM’s two Mississippi facilities. In total, we calculate that these three Eldorado facilities can produce around $200 million in revenue this year, and that they can see around a mid-single-digit percentage lift to sales with the integration of Caesars’ loyalty program, based on past results from Caesars’ integrations. We believe that around half of that lift might come at the expense of these MGM properties, equating to roughly a 1% annual sales impact to these casinos.

The other MGM property we believe could be impacted is the company’s Borgata facility in Atlantic City, given Eldorado has acquired Tropicana. We calculate that Tropicana generates around $300 million in revenue this year with the same mid-single-digit percentage sales uplift from leveraging Caesars’ loyalty program, which stands to have around a 1% impact on average to MGM’s Borgata annual sales in years 2021-28.

We don’t expect any notable impact to MGM’s Las Vegas Strip properties (45% and 50% of estimated 2019 revenue and EBITDA, respectively), given that Eldorado’s three Nevada locations are in Reno and at a relatively lower price point.