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Caesars IPO: Worth About 15% of Zynga

It raised a measly $16.3 million in today's offering


When Zynga (NASDAQ:ZNGA) came public in December, it raised about $1 billion. Since then, the shares have had a nice ride — giving the company a market cap of $9.3 billion. A big reason for the move has been the buzz that various states will make online gambling legal. If so, Zynga could reap a nice payday from its casino games. Its Poker title already pulls in about 7 million users per day.

The difficulty for Zynga will be meeting strict regulations. So, why not buy a real casino — such as Caesars (NASDAQ:CZR), which just went public again today? It raised a measly $16.3 million in its IPO, and now has a market cap of only $1.5 billion. The underwriters included Credit Suisse (NYSE:CS) and Citigroup (NYSE:C).

Why did Caesars do such a minuscule deal? The main reason is that various investors — like Paulson & Co., Blackstone Group (NYSE:BX) and Goldman Sachs (NYSE:GS) — want a way to cash out of their holdings. So, the float is likely to expand significantly over the next six months or so.

As for the small valuation, several key reasons account for this as well. One is that Caesar’s has about $18.5 billion in debt because of its going-private transaction (which was struck in 2006 for $31 billion). Next, the company has suffered from the slowdown in the U.S. economy. Consider that — unlike the Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) — Caesars didn’t have the foresight to build casinos in China’s lucrative Macau.

During the Caesars roadshow, management did play up some of its online properties. But for the most part, Zynga is the one that seems to know how to make a mint from virtual gambling.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”“All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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