Caesars World Announces Recapitalization Proposal : Shareholders Would Receive a Special $25 Cash Dividend in Restructuring Aimed at Foiling Sosnoff’s Takeover Bid

Defending against a $28-a-share takeover bid, Caesars World on Sunday unveiled a billion-dollar “recapitalization” in which it would pay a special cash dividend of $25 a share to its shareholders.

Shareholders of the Los Angeles-based casino operator, whose stock is traded on the New York Stock Exchange, would still own their shares in the reorganized corporation, which would have a heavy debt load as a result of the restructuring.

There was no immediate reaction by Martin T. Sosnoff, who made the unsolicited $28-a-share takeover offer on March 9. Sosnoff is the company’s largest shareholder, with a 13.6% stake. A Caesars World spokesman said the investment firm Drexel Burnham Lambert had informed Sosnoff of the plan “as a courtesy.”

Management’s recapitalization plan is subject to stockholder approval.

Caesars said it expects to finance the big cash payout with about $200 million in bank borrowings and $800 million in junk bonds to be sold by Drexel Burnham.

‘Should Have’ Flexibility

Despite a resulting “substantial deficit in stockholders’ equity,” management said that it has been advised by both Drexel Burnham and another investment banker, Bear, Stearns, that the reincorporated company after recapitalization “should have” the financial flexibility and resources to cover its needs.

As part of a corporate restructuring in the plan, 40 key management employees--including its chairman and chief executive, Henry Gluck--would be rewarded with stock grants, which could total about 8% to 10% of Caesars World’s shares.

About 1.5 million shares of stock would be granted immediately “to retain key management and provide incentives to management in the highly leveraged post-recapitalization environment,” Gluck said.

Another 1.5 million shares would be earmarked for future grants under the long-term stock incentive program, he said.

In a telephone interview from New York, where the plan was announced, Gluck said management considers the plan to be superior to other alternatives considered.

Financial Stability Cited

The plan would avoid sale of assets or layoffs, which sometimes result from leveraged buyouts and “white knight” takeovers, he noted.

Gluck said the company’s financial stability and strong operating results in recent years give it the ability to undertake the proposed restructuring. Gluck, who took the helm of the firm four years ago, noted that the company recently completed its 15th consecutive quarter of increasing earnings per share over the comparable periods of the preceding years.

In approving the recapitalization, the company’s directors voted unanimously, except for one director who was absent because of illness. The plan is expected to go before a special stockholders’ meeting sometime in June.

As part of the plan, the company would change its state of incorporation from Florida to Delaware by merging Caesars World into a wholly owned subsidiary.

Gluck said stock of the resulting restructured company will be traded on a when-issued basis. He noted that the stock, which closed last Friday at $29.25, was trading at about $24 when Sosnoff made his offer of $28 a share.

Caesars World cautioned that shareholders could not be assured of capital gains treatment on the proposed dividend and might be required by the Internal Revenue Service to pay federal income taxes on the entire $25 dividend at ordinary income rates, but only to the extent of their realized gains on their shares.

The company said that shareholders who desire certainty of capital gains treatment should consider the option of selling their shares in the market before the reincorporation merger.

Gluck departed New York shortly after the announcement for Las Vegas, where a boxing match between Marvin Hagler and Sugar Ray Leonard is scheduled for tonight at Caesars Palace. In addition to that hotel-casino, Caesars World owns and operates Caesars Tahoe in Stateline, Nev., and Caesars Atlantic City in New Jersey.

In its announcement Sunday, Caesars World again advised its shareholders not to accept Sosnoff’s offer. On March 23, Sosnoff disclosed that he had been consulting with two Dallas-based firms as possible partners in bidding for the company. However, he announced last week that the companies, Pratt Hotel Corp. and its ally, Southmark Corp., had terminated those discussions.

Gluck said that the company projects its net income will increase to $86.2 million in 1992 from $28.7 million anticipated for the fiscal year ending July 31, 1988. The 1988 figures were cited as “pro forma after the recapitalization.”

The 1992 projections reflect an expected increase in operating income and lower interest expense from retirement of $267 million of debt incurred in the recapitalization, he said.

The company shortly will file preliminary proxy materials with the Securities and Exchange Commission on the recapitalization.

The company plans to have bylaw changes providing, among other things, for a “fair price” provision requiring that certain transactions with interested holders of 15% or more of its stock be approved by an 80% vote from the other stockholders.