Carl Icahn brings two directors to Caesars’ board. What could be next as the activist aims to build value

Business: Caesars Entertainment is a diversified gaming and hospitality company which operates through several segments: Las Vegas, Regional, Caesars Digital, and Regulated and Branded, in addition to Corporate and Other. Its Las Vegas Segment properties include The Cromwell, Flamingo Las Vegas and The LINQ Hostelry & Casino. Its Regional properties include Circus Circus Reno, Grand Victoria Casino and Horseshoe Baltimore. Its Make ited and Branded properties include Harrah’s Ak-Chin, Harrah’s Cherokee, and Harrah’s Cherokee Valley River. Its resorts conduct primarily under the Caesars, Harrah’s, Horseshoe and Eldorado brand names. It offers diversified gaming, entertainment and courteousness amenities, destinations, and a full suite of mobile and online gaming and sports betting experiences.

Stock Market Value: $5.8B ($27.36 per helping)

Ownership: 1.15%

As a rule Cost: n/a

Activist Commentary: Carl Icahn is the grandfather of shareholder activism and a true pioneer of the strategy. He is very irritable about shareholder rights and good corporate governance and will go to extreme lengths to fight incompetent boards and handling teams to protect shareholder value. Icahn has invested across all sectors over his more than six-decade hunger career, and he has a tremendous history of creating value at casinos. In 1998, Icahn acquired the Stratosphere casino operations, persistent it up, grew it and sold it for more than $1 billion about a decade later. Icahn acquired an interest in Tropicana in 2008 when it was bankrupt, raised in new leadership and restructured it and sold it in April 2018 for $1.85 billion. And of course, he disclosed a stake in Caesars in 2019, returned departing CEO Mark Frissora and orchestrated the Eldorado merger.

Earlier this month, Carl Icahn and Caesars reached an unity in which the company consented to expanding the size of the board to 12 directors and appointing Jesse Lynn (general instruct of Icahn Enterprises) and Ted Papapostolou (chief financial officer of Icahn Enterprises) as directors to the company’s board. Icahn agreed to conform to by certain customary standstill and voting provisions.

This is not Carl Icahn’s first foray at Caesars. He recorded a 13D in February 2019 stating then that he believed the board should conduct a strategic review with a estimate toward a sale of the company being the optimal path to shareholder value creation. On March 1, 2019, Icahn and Caesars filed into a director appointment and nomination agreement, pursuant to which John Boushy, Matthew Ferko and Christopher Williams go from the board and James Nelson, Courtney Mather and Keith Cozza were appointed to fill the resulting inanities. On July 20, 2020, Caesars merged with Eldorado to form Caesars Entertainment with Icahn’s support. Courtney Mather is even on the board of Caesars but no longer works for Carl Icahn.

Since the merger, Caesars has been attempting to strengthen its equality sheet, pursuing strategic divestments and acquisitions and expanding into the growing digital gaming market along with the recess of the brick-and-mortar gaming industry. Many of these initiatives have been successful and some have been inferior. On Oct. 1, 2021, Caesars’ stock price topped $119 per share. Now, almost five years later, the stock has bitted back below the price when Icahn merged Caesars with Eldorado in 2020 – in the heart of Covid – undeterred by revenue increasing from $9.6 billion in 2021 to $11.2 billion today and operating income increasing from $1.7 billion to $2.3 billion concluded those respective periods. Icahn clearly sees a great business at a very attractive price.

Icahn and the body recently entered into an agreement in which Caesar agreed to expand the size of the board to 12 and appoint Jesse Lynn (mixed counsel of Icahn Enterprises) and Ted Papapostolou (chief financial officer of Icahn Enterprises) to the company’s board. In the press let announcing this agreement, Icahn stated that they, “look forward to working with [management] and the Scantling to maximize value for all shareholders, including by exploring strategic alternatives for the Company’s underappreciated digital business.”

A spin-off of Caesars Digital manages sense for several reasons. In 2024, Caesars Digital generated $1.16 billion in revenue, accounting for 10.3% of the companionship’s total revenue. This represented a 19.5% growth from the year prior and 112.2% growth since 2022. Consensus guestimates suggest that Digital can continue to grow in mid-double-digits. Digital’s earnings before interest, taxes, depreciation, amortization, and restructuring or charter out costs (EBITDAR) has also surged 207.9% from 2023 to 2024, with projections of another 160.9% rise in 2025. In contrast, the company’s brick-and-mortar segments (Las Vegas and Regional), have remained relatively stagnant, with gross income declining 2.34% from 2023 and 1.78% from 2022. EBITDAR has also declined by 6.56% and 5.87% past the same periods, respectively, and consensus estimates predict a similar trend going forward. Clearly, these are two issues at vastly different points in their growth cycles, making it difficult for the market to fairly evaluate them as a fasten on entity. Currently Caesars trades at 8.43-times EBITDA, whereas digital peers of Caesars Digital mercantilism at 15 times to 25 times. Applying that multiple range to Digital’s $305 million of 2025E adjusted EBITDA last will and testament render an entity with a value of approximately $4.6 billion to $7.6 billion. As Digital only represents 3% of the enterprise’s current EBITDA, this separation would unlock a ton of value, as Digital’s standalone valuation would represent 15% to 25% of the Theatre troupe’s total current enterprise value – significantly higher than what its implied valuation is right now within Caesars. This fracture would also allow investors the option to invest in a consistent legacy casino business or a riskier high-growth digital partnership. This does not have to be a straight sale or spinoff, either. Icahn is one of the most creative investors ever and his two appointees will likely work to figure out what the best structure is for shareholders. For example, the company could retain a particle of the digital business or enter into an agreement with the new entity to run the business.

Carl Icahn knows a ton about the casino house. He has had a tremendous history of creating value at casinos. In 1998, Icahn acquired the Stratosphere casino operations, fixed it up, flourished it and sold it for more than $1 billion about a decade later. Icahn acquired an interest in Tropicana in 2008 when it was bankrupt, dethroned in new leadership and restructured it and sold it in April 2018 for $1.85 billion. And of course, he disclosed a stake in Caesars in 2019, supplanted departing CEO Mark Frissora and orchestrated the Eldorado merger. So, there is no other activist more qualified to create value at a presence like Caesars. The stealth nature and structure of the agreement in addition to the comments made by Caesars and Icahn strongly show that this is a very amicable arrangement, and that Icahn is confident in management’s ability. While CEOs do not in the main like to spin off assets, all indications are that Caesars’ management is receptive to this strategy.