TL;DR: $ERI is buying $CZR at pre-pandemic prices and is now being forced to sell at least two casinos to $TRWH at post-pandemic prices.
$ERI is paying pre-pandemic prices for $CZR in a post-pandemic world. It's one thing if it was purely a stock for stock transaction. But the deal is actually made up of over 90% cash.
This is very good for $CZR shareholders since it means they were cashed out at 90% of pre-pandemic prices. This is best demonstrated in $CZR's current stock price. It's sitting 20% below the Feb highs which is far better than most other casino stocks ($ERI is down 50%).
What's good for CZR, is unfortunately very bad for ERI. Poor bastards made a decision to merge with CZR back in 2019 on a mostly cash basis and BOOM! a pandemic hits and now they're bagholding this deal at a much lower valuation.
In more bad news, it was reported on Friday (6/26/2020) that the FTC is requiring that ERI divest assets in two local markets before the merger can be approved. FTC and ERI came to a settlement on two asset sales to Twin River Holdings ($TRWH).
If deal closes, I believe it would be good for $CZR, bad for $ERI, good for $TWRH.
If $ERI backs out of deal (long shot since they have confirmed their interest in moving forward with the deal many times), it would be disastrous for $CZR. It would also mean more money wasted for $ERI since they would have to pay hundreds of millions to $CZR for backing out of the deal.
Positions:
Shorted $ERI 55C 7/17 at $1.70
Bought $ERI 30P 7/17 at $1.20
Considering hedge with synthetic long position on $TWRH.
Citation:
Submitted June 28, 2020 at 07:00PM by Big_Moe_ https://ift.tt/2AcTORx
