Caesars Entertainment: smart money takes a punt Shareholders in Caesars Entertainment Corporation have been given the chance to double down. The company was called Harrah's when it was taken private in a $30bn buyout in 2007, a deal that has left it staggering under $20bn in debt. That has proved hard to bear in a weak economy and saturated US casino market. This week, Caesars presented its plans for placing various parts of the company - Caesars Interactive online gaming, the Planet Hollywood hotel and some financial assets - into a separate entity, Caesars Growth Partners. The private equity firms TPG and Apollo, which still own 70 per cent of Caesars stock, will chip in $500m for a 23 per cent stake, with Caesars owning the remainder. Other shareholders of Caesars will be given the right to invest alongside the sponsors on the same terms, and can transfer those rights. The offer has sent the stock up more than 30 per cent, to an all-time high. What investors own has not changed. Most importantly, the sponsors" investment sets a valuation for the parent, Caesars: $500m for a 23 per cent stake of Growth Partners pegs its equity value at $2.2bn. Caesars" 77 per cent stake in Growth Partners would then be worth $1.7bn, or $13.39 per share. Before the announcement Caesars stock was trading at $12.49, suggesting nearly all its equity value is in Growth Partners entity. However, it is now trading at $17, which could signal that the remaining assets still have some equity value after accounting for all that debt. More intriguing, the sponsors may have crafted sweet terms for themselves: analysts had pegged higher values for the assets relative to earnings potential. So that right to participate alongside has some freestanding value. The situation is rife with potential conflict - TPG and Apollo are on both sides of the transaction. But if smart money is putting money in, rolling the dice with them may be worth it.