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U.S. casino operator Eldorado Resorts Inc. has agreed to buy rival Caesars Entertainment Corp. for about US$8.5-billion in cash and stock, as it looks to build scale to take on larger companies such as Las Vegas Sands and Wynn Resorts.

The deal comes more than three months after Caesars agreed to give billionaire investor Carl Icahn three board seats to his representatives and a say on the selection of its next chief executive officer.

Icahn, who has been pressing for a sale of Caesars, held a 14.75-per-cent stake in the company as of March 31, according to data from Refinitiv Eikon.

Shares of Caesars, up 47 per cent this year, rose 11.4 per cent to US$14.51 at midafternoon, while Eldorado’s stock, which has increased 41.4 per cent year to date, fell 13.2 per cent to US$44.45.

Eldorado has made a series of acquisitions over the past few years including a US$1.85-billion deal for Icahn-backed Tropicana Entertainment in 2018 and a US$1.7-billion deal for Isle of Capri Casinos in 2017, strengthening its free cash flow and earnings per share.

The company’s stock has risen more than 10 times since it went public in 2014, outperforming MGM Resorts, Las Vegas Sands and Wynn Resorts, whose shares have been under pressure due to their exposure to Macau and trade tensions with China.

“Eldorado has proven its ability to execute. ... We expect the long-term positives [of the deal] could prove out,” Jefferies analyst David Katz said.

Eldorado’s offer of US$13.01 a share represents a premium of about 30 per cent to Caesar’s closing price on Friday.

Caesars, which emerged from bankruptcy in 2017, operates casinos with the Harrah’s and Horseshoe brands. The company owns and operates 34 properties in 9 U.S. states and three continents, and its long-term debt stood at US$8.79-billion as of March 31.

Founded in 1973 by the Carano family, Eldorado had long-term debt of about US$3.06-billion at the end of March. The company owns and operates 26 properties in 12 U.S. states.

Mr. Icahn said he was “pleased” by the deal announcement.

“It is rare that you see a merger where because of the great synergies ‘one plus one equals five.’ I look forward to seeing our investment prosper,” he said in a statement.

The deal price represents a premium of 51 per cent over Caesar’s trading price on the day before Mr. Icahn’s representatives joined the board of Caesars on March 1.

Eldorado and Caesars shareholders will hold about 51 per cent and 49 per cent of the combined company’s shares following the close of the deal in the first half of 2020. The company is targeting US$500-million in savings in the first year of its operation.

In a parallel deal, the combined company will sell some of its real estate to VICI Properties Inc, while generating US$3.2-billion of proceeds.

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