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Best of Howard Stutz

Gaming Guru

Howard Stutz

Deals called shift in gaming

22 December 2006

LAS VEGAS, Nevada – Phil Satre, who guided Harrah's Entertainment for 25 years, said this week's $27.8 billion buyout of the company by two private equity groups was just another step in the evolution of the gaming industry pioneer.

Satre, who retired as Harrah's chairman in 2005, said other casino operators will most likely follow Harrah's lead and turn to the private equity markets for financing their growth initiatives.

"It seems like they got a fair price," Satre said in a phone interview from Reno of the $90 a share offer from Texas Pacific Group and Apollo Management, valued at $17.1 billion. The private equity groups are also assuming Harrah's $10.7 billion in debt.

"We've always looked at our company as a very mainstream U.S. business," Satre said. "So we're probably a lot less colorful than some of the other casino companies. In that regard, the Apollo-TPG offer fits the trend. It was an opportunity to create shareholder value."

Satre still maintains an office at Harrah's Reno, even though he is no longer on the company's board. Current Harrah's Chairman and Chief Executive Officer Gary Loveman told Satre about the initial private equity offer just before it was announced Oct. 2.

However, Loveman was not involved in the final negotiations between Harrah's non-management board members and the private equity groups. Satre said he wasn't surprised the final outcome took almost 10 weeks to decide.

"We visited a little bit," Satre said. "I would also run into some of the board members from time to time. Private equity believes gaming is a good investment."

Satre said Harrah's founder Bill Harrah took his company public in 1972, the first pure casino company to turn to Wall Street for financing. Harrah started the company as a small bingo parlor in Reno in 1937.

"Hilton was publicly traded but it was mainly a hotel company with a casino," Satre said. "Although he had no desire to do anything outside Reno or Lake Tahoe, Bill was very forward thinking in that manner."

Bill Harrah died in 1978 and the company was bought by the Holiday Corp., which operated the Holiday Inns hotel chain worldwide. Satre said Harrah's then became sort of a trail blazer that other casino companies followed.

Harrah's was the first major casino operator to enter Atlantic City in 1980. The company went into the riverboat casino market, opening a casino in Joliet, Ill., in 1993. In 1994, Harrah's opened a casino outside of Phoenix for the Ak Chin Indian tribe, the first time a major casino operator partnered with Indian gaming.

Meanwhile, Harrah's went though several corporate changes through the 1990s. Holiday Corp. spun off the Holiday Inn chain and became Promus Companies, moving the Harrah's headquarters to Memphis, Tenn. Five years later, the remaining hotel brands were sold and the company was renamed Harrah's Entertainment, returning the Harrah's name to the New York Stock Exchange.

"The company has always been unconventional because Bill was unconventional," Satre said. "This deal shows that private equity views gaming positively. Gaming is no longer viewed as unapproachable. It's viewed as any other industry, but one that has a significant regulatory component. That's why Apollo and TPG were looking at Harrah's."

Satre, who serves on the board of directors of Sierra Pacific Resources, said the Harrah family no longer has any involvement with the company. Bill Harrah's two sons still live in Reno, he said.

Deals called shift in gaming is republished from