In M&A, much like in blackjack, players have to be wary of a stiff hand – bid too high and it could be a bust. That’s especially true when the dealer is Carl Icahn.  

Eldorado Resorts Inc. (ERI.O), a casino operator, is being punished by shareholders for its acquisition announced Monday of Caesars Entertainment Corp. (CZR.O) Eldorado’s stock tumbled more than 8 per cent.

The company agreed to buy its Las Vegas-based rival for US$17.3 billion, about half of which is made up of debt. It’s the biggest casino deal since Caesars’ ill-fated leveraged buyout by TPG and Apollo Management in 2008 (which came together just before the financial crisis took hold and later led Caesars into bankruptcy). Eldorado also struck a parallel US$3.2 billion deal with VICI Properties Inc. for certain related real estate assets, such as the Harrah’s Resort in Atlantic City. 

Icahn, Caesars’ top shareholder, had been pushing for a sale of the company and helped install industry veteran Tony Rodio as its CEO in April. The situation happens to bear close resemblance to another deal Eldorado did last year, when it acquired Tropicana Entertainment from Icahn Enterprises LP, the billionaire’s holding company, for US$1.85 billion. Rodio was CEO of Tropicana, too. 

With the Caesars transaction, Reno, Nevada-based Eldorado is expanding its portfolio to 60 casino resorts and gaming facilities in 16 states. It had just two as of 2014, according to Bloomberg Intelligence. There are the benefits of getting bigger, but at the same time, Eldorado’s calculations leave little room for error. 

Its offer for Caesars is a combination of cash and stock that amounts to US$12.75 a share, a significant bump from its earlier US$10.50-a-share bid that was reported this month by the New York Post, citing an unnamed source. On average, analysts pegged the stand-alone value of Caesars shares at US$11 apiece. The final takeover price is a 35 per cent premium to its average closing level over the past 20 trading sessions, though Icahn himself notes that it’s 51 per cent higher than Caesars’ stock price before he won three seats on the board in March and began making his sale push. Icahn built his stake when the stock was trading below US$9. 

Eldorado estimates US$500 million of cost savings from the deal, a figure that has analysts from Sanford C. Bernstein skeptical. “While Eldorado has been successful in rolling up gaming assets across the U.S., this acquisition of a whale operator is at a completely different level,” they wrote in a report published Monday. The synergies estimate is also double what Brian Egger, an analyst for Bloomberg Intelligence, had assumed.

The suitor beat out Golden Nugget owner Tilman Fertitta, but now it needs to prove to investors that it was worth it. As for Icahn, once again, the house wins.