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NEW YORK -- Harrah's Entertainment's board of directors has agreed to a $16.7 billion buyout of the casino operator by two private equity firms, sources told The Associated Press on Monday.
Harrah's has struck an agreement in principle for Texas Pacific Group of Fort Worth, Texas, and New York-based Apollo Management to buy all 186 million outstanding shares of Harrah's Entertainment for $90 a share in an all cash deal, the sources said.
Final details of the transaction are being hammered out, and the deal could be in place by the opening bell of the New York Stock Exchange today, a source said.
"The price was agreed upon last week," a source said. "The details of the transaction are holding this up. This is a very complicated transaction."
Sources said issues such as timing of the stock purchase and dates for closing the transaction were some of the points holding up an announcement. The deal would have to be approved by gaming regulators in the 13 states where Harrah's operates casinos, including Nevada and New Jersey.
Representatives of Harrah's and the private equity firms would not confirm the existence of an agreement Monday.
Harrah's spokesman Alberto Lopez on Monday said he could not comment on "market speculation." The Wall Street Journal reported the offer earlier Sunday.
Nevada's gaming regulators are notified ahead of time by licensees of a potential change in ownership. As of Monday afternoon, members of the Gaming Control Board had not received any word about the Harrah's deal being finalized.
At $16.7 billion, the potential deal would rank as the sixth-largest private equity buyout ever, Thomson Financial said, and would be the largest such transaction for a gaming company.
A committee of Harrah's board members and representatives and the private equity firms negotiated the terms of the agreement over two days last week in New York. The sides met again Sunday in New York and were reportedly continuing to negotiate on Monday.
When The Associated Press announced the news of the deal Monday, shares of Harrah's jumped on the New York Stock Exchange. By the end of trading, Harrah's stock price gained $2.68, 3.37 percent, to close at $82.18. Almost 14 million Harrah's shares were traded during the session, more than four times the average daily volume.
Harrah's runs almost 40 casinos in 13 states under such brands as Harrah's, Caesars and Horseshoe.
The company owns the 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 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 market capitalization of almost $15 billion.
The private equity groups 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, composed of the nonmanagement board members, began considering the offer.
News of an impending deal for Harrah's was good for shares of another casino operator. Penn National Gaming, which had been bidding against the private equity groups for control of Harrah's, had its stock price climb $3.08, 8.1 percent, on the Nasdaq National Market to close at $41.24.
Penn National reportedly had submitted a cash and stock bid of $88.50 a share for Harrah's.
Morgan Joseph gaming analyst Adam Steinberg, in a note to investors Monday, said he did not support the regional operator bidding on Harrah's. Penn National has 16 casinos and racetracks in 12 states.
"We were not in favor of the company purchasing Harrah's given the steep price tag and the number of shares that would have to be issued by Penn to consummate the transaction," Steinberg said. "Through this process, we believe that Penn has obtained a head start on other companies that would be interested in acquiring some of Harrah's assets, which might be divested following the privatization."
Steinberg would not rule out Penn National operating a Strip casino.
"Penn sent a powerful message to the investment community that it is prepared to become very active in further industry consolidation and is serious in its pursuit of a presence in Las Vegas and Atlantic City," Steinberg said. "Penn has reached its current size through prudent acquisitions, which have delivered value to shareholders."
Penn could be in the market for other casino companies that do not have shares concentrated in a single person or family, analysts said.
That ruled out companies such as Steve Wynn-controlled Wynn Resorts Ltd., Sheldon Adelson's Las Vegas Sands Corp., and MGM Mirage Inc., majority owned by Kirk Kerkorian.
"We believe other small-cap companies could now become potential candidates for acquisition by Penn National," Steinberg said. "These companies include Boyd Gaming, which we view as a smaller version of Harrah's and which has very little overlap with Penn."
New York-based Apollo Management founding partner Leon Black was the former co-head of corporate finance at now-defunct Drexel Lambert Inc., the top underwriter of high-yield corporate debt before collapsing in 1990. Black, 55, founded Apollo Management that year and has made equity investments of more than $16 billion.
Texas Pacific created the world's second-biggest buyout fund this year, raising $15 billion.
The firm has raised more than $28 billion through six funds in the 14 years since it was founded by David Bonderman, James Coulter and Bill Price. It has invested in about 75 companies.
At $90 a share, Texas Pacific and Apollo would be paying less for Harrah's earnings than what Las Vegas Sands' or MGM Mirage's profits are worth on the stock market.
Harrah's is being valued at 21.4 times projected 2007 earnings, based on the average estimate of 18 analysts surveyed by Bloomberg. That compares with a 24.6 ratio for MGM Mirage and 50.7 for Las Vegas Sands Corp. at last week's stock market prices, according to Bloomberg data.
The Associated Press and Bloomberg News contributed to this report.
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