XML 26 R9.htm IDEA: XBRL DOCUMENT
v3.20.2

Acquisition of Former Caesars | 9 Months Ended
--- | ---
Sep. 30, 2020
Business Combinations [Abstract] |
Acquisition of Former Caesars | Acquisition of Former Caesars Merger with Caesars Entertainment Corporation On July 20, 2020, the Merger was consummated and Former Caesars became a wholly-owned subsidiary of the Company. The strategic rationale for the Merger includes, but is not limited to, the following: •Creation of the largest owner, operator and manager of domestic gaming assets •Diversification of the Company’s domestic footprint •Access to iconic brands, rewards programs and new gaming opportunities expected to enhance customer experience •Realization of significant identified synergies The total purchase consideration for Former Caesars was $10.9 billion. The estimated purchase consideration in the acquisition was determined with reference to its acquisition date fair value.
(In millions) | Consideration
Cash consideration paid | $ | 6,090 |
Shares issued to Former Caesars shareholders | 2,381 |
Cash paid to retire Former Caesars debt | 2,356 |
Other consideration paid | 48 |
Total purchase consideration | $ | 10,875 |
Based on the closing price of $38.24 per share of the Company’s common stock, par value $0.00001 per share (“Company Common Stock”), reported on NASDAQ on July 20, 2020, the aggregate implied value of the aggregate merger consideration paid to former holders of Former Caesars common stock in connection with the Merger was approximately $8.5 billion, including approximately $2.4 billion in the Company Common Stock and approximately $6.1 billion in cash. The aggregate merger consideration transferred also included approximately $2.4 billion related to the repayment of certain outstanding debt balances of Former Caesars and approximately $48 million of other consideration paid which includes $19 million related to a transaction success fee, for the benefit of Former Caesars, and $29 million for the replacement of equity awards of certain employees attributable to services provided prior to the Merger. Pursuant to the Merger, each share of Former Caesars common stock was converted into the right to receive, at the election of the holder thereof and subject to proration, approximately $12.41 of cash consideration or approximately 0.3085 shares of Company Common Stock, with a value equal to approximately $12.41 in cash (based on the volume weighted average price per share of Company Common Stock for the 10 trading days ending on July 16, 2020). Following the consummation of the Merger, stockholders of the Company and stockholders of Former Caesars held approximately 61% and 39%, respectively, of the outstanding shares of Company Common Stock. Preliminary Purchase Price Allocation The fair values are based on management’s analysis including preliminary work performed by third party valuation specialists, which are subject to finalization over the one-year measurement period. The purchase price accounting for Former Caesars is preliminary as it relates to determining the fair value of certain assets and liabilities, including goodwill, and is subject to change. The following table summarizes the preliminary allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of Former Caesars, with the excess recorded as goodwill as of September 30, 2020:
(In millions) | Fair Value |  |
Current and other assets | $ | 4,264 |  |  |
Property and equipment | 12,730 |  |  |
Goodwill | 8,649 |  |  |
Intangible assets (a) | 3,549 |  |  |
Other noncurrent assets | 684 |  |  |
Total assets | $ | 29,876 |  |  |
Current liabilities | $ | 1,896 |  |  |
Financing obligation | 8,134 |  |  |
Long-term debt | 6,591 |  |  |
Noncurrent liabilities | 2,362 |  |  |
Total liabilities | 18,983 |  |  |
Noncontrolling interests | 18 |  |  |
Net assets acquired | $ | 10,875 |  |  |
____________________ (a)Intangible assets consist of gaming licenses valued at $537 million, trade names valued at $2.1 billion and Caesars Rewards programs valued at $540 million and customer relationships of $404 million. The fair values of the assets acquired and liabilities assumed were determined using the market, income, and cost approaches, or a combination. Valuation methodologies under both a market and income approach used for the identifiable net assets acquired in the Former Caesars acquisition make use of Level 3 inputs, such as expected cash flows and projected financial results. The market approach indicates value for a subject asset based on available market pricing for comparable assets. Trade receivables and payables and other current and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items at the Former Caesars acquisition date. Assets and liabilities held for sale are recorded at fair value, less costs to sell, based on the agreements reached as of the acquisition date, or an income approach. Certain financial assets acquired were determined to have experienced more than insignificant deterioration of credit quality since origination. A reconciliation of the difference between the purchase price of financial assets, including acquired markers, and the face value of the assets is as follows:
(In millions) |  |
Purchase price of financial assets |  | $ | 95 |
Allowance for credit losses at the acquisition date based on the acquirer’s assessment |  | 89 |
Discount / (premium) attributable to other factors |  | 2 |
Face value of financial assets |  | $ | 186 |
The fair value of land was determined using the sales comparable approach. The market data is then adjusted for any significant differences, to the extent known, between the identified comparable sites and the site being valued. The value of building and site improvements was estimated via the income approach. Other personal property assets such as furniture, gaming and computer equipment, fixtures, computer software, and restaurant equipment were valued using the cost approach which is based on replacement or reproduction costs of the asset. The cost approach is an estimation of fair value developed by computing the current cost of replacing a property and subtracting any depreciation resulting from one or more of the following factors: physical deterioration, functional obsolescence, and/or economic obsolescence. Non-amortizing intangible assets acquired primarily include trademarks, Caesars Rewards and gaming rights. The fair value for these intangible assets was determined using either the relief from royalty method and excess earnings method under the income approach or a replacement cost market approach. Trademarks and Caesars Rewards were valued using the relief from royalty method, which presumes that without ownership of such trademarks or loyalty program, the Company would have to make a stream of payments to a brand or franchise owner in return for the right to use their name or program. By virtue of this asset, the Company avoids any such payments and records the related intangible value of the Company’s ownership of the brand name or program. The acquired Trademarks, including Caesars Rewards are indefinite lived intangible assets. Customer relationships are valued using an income approach, comparing the prospective cash flows with and without the customer relationships in place to estimate the fair value of the customer relationships, with the fair value assumed to be equal to the discounted cash flows of the business that would be lost if the customer relationships were not in place and needed to be replaced. We estimate the useful life of these customer relationships to be approximately 7 years. Gaming rights include our gaming licenses in various jurisdictions and may have indefinite lives or an estimated useful life. The fair value of the gaming rights was determined using the excess earnings or replacement cost methodology, based on whether the license resides in gaming jurisdictions where competition is limited to a specified number of licensed gaming operators. The excess earnings methodology is an income approach methodology that estimates the projected cash flows of the business attributable to the gaming license intangible asset, which is net of charges for the use of other identifiable assets of the business including working capital, fixed assets and other intangible assets. The replacement cost of the gaming license was used as an indicator of fair value. The acquired gaming rights have indefinite lives, with the exception of one jurisdiction in which we estimate the useful life of the license to be approximately 34 years. Goodwill is the result of expected synergies from the operations of the combined company and the assembled workforce of Former Caesars. The goodwill acquired will not generate amortization deductions for income tax purposes. Pushdown accounting, including the allocation of goodwill to our reportable segments, is not complete. The fair value of long-term debt has been calculated based on market quotes. The fair value of the financing obligations were calculated as the net present value of both the fixed base rent payments and the forecasted variable payments plus the expected residual value of the land and building returned at the end of the expected usage period. The Company recognized acquisition-related transaction costs of $107 million and $129 million for the three and nine months ended September 30, 2020, respectively, and $13 million and $17 million for the three and nine months ended September 30, 2019, respectively. These costs were associated with legal, IT costs, internal labor and professional services and were recognized as Transaction costs and other operating costs in our Consolidated Statements of Comprehensive (Loss) Income. For the period of July 20, 2020 through September 30, 2020, Former Caesars generated net revenues of $924 million and net loss of $564 million. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information is presented to illustrate the estimated effects of the acquisition of Former Caesars as if it had occurred on January 1, 2019. The pro forma amounts include the historical operating results of the Company and Former Caesars prior to the acquisition, with adjustments directly attributable to the acquisition. The pro forma results include adjustments and consequential tax effects to reflect incremental depreciation and amortization expense to be incurred based on preliminary fair values of the identifiable property and equipment and intangible assets acquired, the incremental interest expense associated with the issuance of debt to finance the acquisition and the adjustments to exclude acquisition related costs incurred during the three and nine months ended September 30, 2020 and to recognize these costs during the nine months ended September 30, 2019 as if incurred in the first quarter of 2019. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations of the combined company were, nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition.
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Net revenues |  | $ | 1,639 |  |  | $ | 2,607 |  |  | $ | 4,145 |  |  | $ | 7,652 |
Net loss |  | (989) |  |  | (363) |  |  | (2,266) |  |  | (894) |
Net loss attributable to Caesars |  | (927) |  |  | (362) |  |  | (2,200) |  |  | (892) |

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration