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Gaming Guru

Howard Stutz
 

Buyout bid boosts Harrah's in October, driving index up

1 November 2006

A proposed $15.5 billion buyout offer by two private equity groups for Harrah's Entertainment helped to escalate the company's average daily stock price in October.

Other gambling stocks and a gaming index compiled by Las Vegas-based financial consulting firm Applied Analysis benefited, too.

The index, which charts the average daily stock prices for six casino companies and three slot machine manufacturers, rose 32.4 points or 9.3 percent in October to close the month at 381.5, an all-time high.

"The new valuations within the gaming sector were primarily driven by the leveraged buyout offer for Harrah's," Applied Analysis partner Brian Gordon said Tuesday.

He added the takeover attempt overshadowed all other gaming industry news during October.

"Earnings season is really not reflected in October's values," Gordon said.

Harrah's and Boyd Gaming Corp. announced earnings last week, Las Vegas Sands Corp. is scheduled to announce earnings today. MGM Mirage and Station Casinos have announcements scheduled for Thursday.

"We'll probably see more of an impact from those announcements next month," Gordon said.

The Dow Jones industrial average also hit an all-time high in October, shooting above 12,000 during the month. That news had a minimal effect on the gaming sector, analysts said.

"(The Dow) is much more related to consumer spending," Deutsche Bank analyst Bill Lerner said. "A lot of that is due to a function of oil prices being down. The perception is that consumer spending will be healthier."

Gordon said gaming stocks are much more volatile than other shares. If the market is up, casinos shares can rise at much higher rates, he said; if the market tumbles, gaming stocks can take a bigger fall.

"The sector swoops wider both ways," Gordon said. "Stocks for gaming, leisure and the hospitality industries are much more on the radar screens (of investors)."

The unsolicited offer for Harrah's from Texas Pacific Group of Forth Worth, Texas, and New York-based Apollo Management, now estimated at between $83 and $84 a share for all outstanding company shares, was revealed on Oct. 2. Harrah's asked a committee of its nonmanagement board of directors to evaluate the offer, but no decision has been reached.

Shares in Harrah's soared in value that day on the New York Stock Exchange, and haven't subsided. The company's shares finished October with an average daily price of $75, up 16.3 percent from September's close.

Lerner said investors are speculating which other casino operators might be the target of a leveraged buyout.

Other casino operators' stock prices drifted upward with Harrah's. MGM Mirage finished October with an average daily stock price of $42.37, up 13.1 percent from September, and Boyd Gaming Corp. closed the month with an average daily price of $41.07, up 13 percent. Station Casinos was up 5.9 percent in October to finish the month at $61.03.

Whatever Harrah's decides to do with the offer could play a significant role on how the sector performs in November.

"Investors are hoping to see some sort of resolution in the coming weeks," Gordon said. "They want to know in what direction the company is heading."

Two other casino companies charted in the index, Wynn Resorts Ltd. and Las Vegas Sands Corp., were more affected by results coming out of the market in Macau, China, where the casino operators have significant holdings, Gordon said.

Las Vegas Sands' October average daily stock price climbed 9.6 percent over September while Wynn Resorts' price was off 0.24 percent.

The stock prices for gaming-equipment manufacturers swung upward in October. Industry giant International Game Technology's stock price increased 6.6 percent in during the month; WMS Industries' shares climbed 9 percent.

Bally Technologies continued its climb back up in October, finishing the month with an average daily price of $18.61, an 11.1 percent jump since September. The figure was a 77.5 percent climb from October 2005.

Buyout bid boosts Harrah's in October, driving index up is republished from Online.CasinoCity.com.