Bank said Britney Spears changed nothing about the value of the casino she packed
Planet Hollywood was sold for pennies to a clean new Caesars company, while Apollo projected a $775 million gain.
The Wall Street Skinny · Restructuring 101: How Private Equity Pits Debt Investors Against Each Other | Caesars Part 2/3In February 2014, two friends went to see Britney Spears at Planet Hollywood with their husbands. They said tickets were so hard to get that they had to drag their husbands along.
The packed room was the point. Caesars, owned by private equity firms Apollo and TPG, needed a way to grow out of about $24 billion in debt. After consulting Gary Vee, the social media guru, the owners settled on a plan to capture the wallets of people in their 20s and 30s, starting with Spears at Planet Hollywood and later adding the Backstreet Boys. The residency filled the casino after years of weak business and bought the company more time.
That timing matters because Planet Hollywood was about to change hands. Apollo and TPG had created a clean new company, Caesars Growth Partners, with no legacy debt, to buy assets from the debt burdened operating company that ran the casinos. When Planet Hollywood was sold to that new company, Evercore, the investment bank advising the board on the sale, said the residency left the valuation unchanged. The casino was sold for pennies, at a steep discount.
A month after the sale was finished, Apollo shared new projections with its directors. It had spent $350 million on Planet Hollywood plus a second casino, and about $525 million on an online poker business. It estimated the two casinos would climb to $830 million in value within three years, and the online operation would climb to $820 million. On that one set of deals, the owners projected a gain of $775 million in three years.
Spears filled the casino and kept the old operating company going longer. But interest payments kept crushing cash flow as debt came due, and the operating company kept running out of cash.
Questions people ask
What is a Vegas residency?
A residency is a long run of concerts in one venue, rather than a tour that moves city to city. In Las Vegas, a star plays the same theater dozens or hundreds of times, which lets the casino fill hotel rooms, restaurants, and slot floors night after night.
What was Caesars Growth Partners?
Caesars Growth Partners was a new company set up by Apollo and TPG without the old Caesars debt. It raised fresh cash and new loans, then bought casinos and online gaming assets from the indebted operating company.
What is a fairness opinion in a corporate sale?
A fairness opinion is a letter from an investment bank saying a deal price looks reasonable to a board. It is based on forecasts, comparable deals, and formulas, so small changes in assumptions can produce a very different value.