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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Gaming industry: Harrah's still meeting on buyout bids

18 December 2006

The board of directors of casino giant Harrah's Entertainment met again on Sunday to discuss buyout offers for the company while sources told the Wall Street Journal that two private equity firms are the leading candidates to purchase the Las Vegas-based gaming operator in a $16.7 billion all cash deal.

If the transaction takes place, it would be the largest such deal ever for the gaming industry.

The deal, in which private equity firms Texas Pacific Group of Fort Worth, Texas and New York-based Apollo Management would buy all 186 million outstanding shares of Harrah's Entertainment for $90 a share, could be announced as early as this morning before the opening of the New York Stock Exchange, sources said. As of late Sunday afternoon, the deal was not finalized.

The two firms are attempting to outbid regional casino operator Penn National Gaming for Harrah's. Wyomissing, Pa.-based Penn National has reportedly bid $88.50 a share for Harrah's. A source familiar with the negotiations said Penn National would have to pay at least $2 a share more than the private equity firms because the casino operator's bid includes both stock and cash.

If a deal is agreed upon, details, such as the percentage make-up of the private equity groups' contribution and dates for purchasing shares are expected to be revealed this morning.

The purchase of Harrah's, coming 18 months after the company became the gaming industry's largest casino operator after buying rival Caesars Entertainment for a then-record $9 billion, would end almost three months of speculation about the company's future.

The 11 members of Harrah's board of directors, except for company Chairman and Chief Executive Officer Gary Loveman, had two days of meetings in New York last week to pore over the bid from the private equity groups and the Penn National offer. In addition, a plan to recapitalize the company was also being explored.

The private equity groups initially bid $81 a share on Oct. 2 for Harrah's, reportedly kicking up the offer to $83.50 a share about 10 days later. A special board committee, made up of the non-management board members, began looking at the offer.

Meanwhile, a bid from the much smaller Penn National surfaced. Penn National operates 16 casinos and racetracks in 12 states and Canada and has a market capitalization of $3.3 billion.

Harrah's runs almost 40 casinos in 13 states under such brands as Harrah's, Caesars and Horseshoe.

The company also owns the lucrative World Series of Poker and operates casinos in Canada and Uruguay. Harrah's has development deals in such countries as Spain and Slovenia and has a deal in place to buy United Kingdom casino operator London Clubs International.

In 2005, Harrah's reported earnings of $236.4 million on revenue of $7.1 billion. The company has a current market capitalization of almost $15 billion.

Gaming regulators in Nevada, New Jersey and all states where Harrah's operates casinos will have to approve of the transaction, which analysts had previously predicted could take well over a year.

A source said any agreement with the private equity group calls for Harrah's current management team, led by Loveman, to continue to operate the Las Vegas-based casino company.

By selling out to private-equity firms, Harrah's could have more freedom to continue its expansion initiatives without the scrutiny of shareholders seeking a quick return on investments.

In Las Vegas, Harrah's operates seven casinos -- Harrah's Las Vegas, Flamingo, Caesars Palace, Bally's, Paris Las Vegas, Rio and Imperial Palace -- and is in the process of purchasing an eighth property, the Barbary Coast. That deal is the result of a land swap with Boyd Gaming Corp.

The Barbary Coast and its 4.4 acres would give Harrah's some 350 acres along the Strip for development purposes. Harrah's said the land, in total, cost approximately $13 million an acre. The company is exploring options for the land, which includes redeveloping some of the casino properties.

Harrah's also owns about 50 acres in Biloxi, Miss., that it is master-planning for development.

Private money has gone on a months-long shopping spree for casino operators, which are valued for their cash-generating ability and significant real estate holdings.

Analysts have said the search for casino companies that could be buyout targets will continue.

Gaming industry: Harrah's still meeting on buyout bids is republished from Online.CasinoCity.com.