The planned merger between Eldorado Resorts Inc. (ERI) and Caesars Entertainment just hit a possible problem. Eldorado Resorts CEO Tom Reeg, another high-ranking executive at the regional gaming company, and two of its board members are being investigated by the Securities and Exchange Commission (SEC) for trades in the tiny medical device manufacturer IRadimed Corp a medical device manufacturer. If the SEC were to decide to break the large casino merger, Eldorado could be on the relation for up to $836.8 million in penalties payable to Caesars. Eldorado is in the process of acquiring Caesars Entertainment for $17.3 billion, a transaction that will create the largest domestic gaming company in terms of number of casinos.
As part of the process of the merger of these two companies Eldorado presented almost its entire history to the SEC on Sept. 3, one that spans nearly 400 pages, Eldorado notes on page 138 that while the companies were performing due diligence on each other, the Reno-based firm told Caesars that Reeg chairman Gary Carano, chief operating officer Anthony Carano and board member James Hawkins had been summoned from the SEC in May pertaining to an ongoing investigation in trades in another publicly traded entity. Hawkins is on Eldorado’s compensation and audit committees and is also listed as holding a spot on IRadimed’s board.
While it doesn’t specifically mention IRadimed by name, the company is described as
“the stock of which the ERI executives had traded and for which Mr. Hawkins had served as a member of the board of directors.”
This revelation may put the $17.3-billion deal at risk, but the SEC doesn’t necessarily have to take a heavy-handed approach. The filing indicates the SEC investigation should not derail Eldorado’s plans to acquire Caesars because it would have to give $155 million to Caesars if it is forced to quit the deal. There would be breakup fees involved should the deal fall part. In regulatory documents revealed on June 25, the day after Eldorado’s offer was made public, it’s noted that the regional gaming company would have to pay Caesars almost $155 million if it backs out of the deal. Likewise, if Caesars doesn’t want to proceed with the marriage, it would have to cut a check to Eldorado for $418.4 million.
Though the recent S-4 filing shows a different figure, though, indicating that Eldorado is on the risk for $836.8 million
“in the event that the merger agreement was terminated for failure to obtain one or more required regulatory approvals, or if ERI was in material and willful breach of its regulatory efforts obligations with respect to antitrust laws.”
The exact nature of the SEC investigation into the executives isn’t known. There is a suspected link between the individuals and IRadimed shares, but no mention is ever specifically made of possible insider trading. Now that the subject has come to the front lines, investigative minds will certainly unravel the mystery.
Terms and Conditions of Merger:
Eldorado has been selling properties in advance of and following the acquisition announcement, and it is widely believed the company will shed more assets to avoid regulatory issues in key markets such as Atlantic City, N.J. and Las Vegas, among others.
“IRadimed is a leader in MRI patient care, with vast experience in MRI innovation,” according to the company’s web site. “Roger Susi, our president and CEO, is the founder of Invivo Research, where he pioneered the world’s first and best-selling MRI patient vital signs monitoring brand, as well as founding IRadimed Corporation, the producer of the world’s first and best-selling non-magnetic MRI infusion pumps and patient monitors.”
The company has a market capitalization of nearly $215 million, putting it in micro-cap territory.
From January till April end, shares of Iradimed gained about 50 percent before shedding nearly a third of their value just in the month of May. The stock closed at $18.82 today.