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Gaming Guru

Chris Jones
 

Megamerger: A Contrast in Cultures

21 July 2004

LAS VEGAS -- What to make of a proposed deal that would reshape much of the Strip has become a modern-day $64,000 question, and then some, for many local gaming operators.

But with close to $10 billion at stake in Harrah's Entertainment's bid to buy rival gaming operator Caesars Entertainment, many local casino executives are tight-lipped when asked to address the potential pros and cons of Las Vegas' latest planned megamerger.

Those willing to talk, however, said they're particularly interested in how Harrah's hopes to balance its distinctive corporate culture with the vastly different business model in place at Caesars.

"It's a bit of an odd fit, but that doesn't mean they can't make it work," an executive with a rival casino company, who asked not to be identified, said when asked about the planned $9.4 billion Harrah's-Caesars deal.

Harrah's management treats gaming as a commodity, something akin to hamburgers at McDonald's or coffee at Starbucks, that source said, adding the company strives to offer its patrons a largely similar experience regardless of which Harrah's property they visit.

Caesars, on the other hand, has found success based on the deployment of its myriad brands that include the faux-Roman splendor of Caesars Palace to the phony French streetscapes of Paris Las Vegas.

"Both of these philosophies can prove very successful over time, but the question here is what happens when you try to put them together in one company?" the executive said. "If what Harrah's is doing is trying to expand its offerings by getting these other brands, that's probably a really good thing.

"But if they're looking to impose upon Paris (Las Vegas), Caesars (Palace) and Bally's the Harrah's way of doing things, I'm not so certain that that's going to work."

News of the deal became public last week after both companies' boards of directors announced an agreement to combine the two gaming industry giants pending regulatory approval. Harrah's interest in Caesars stems largely from its desire to increase its Southern Nevada presence, particularly within a Strip submarket that's enjoyed unparalleled success in recent years.

If approved, Harrah's would control six casinos near the busy intersection of the Strip and Flamingo Road, including the Rio a mile or so to the west.

A second local casino executive also expressed serious concerns about Harrah's ability to impose its culture on Caesars, which has operated under a mishmash of policies in the wake of several past deals.

"Caesars has been challenged by divergent cultures inside it for a long time, going back to the acquisition of the Hilton, Bally's and Grand Casinos," the executive said. "There are still a lot of different camps in there."

Harrah's, however, has a strong corporate identity that could bring a rude awakening to those at Caesars, he added.

"When Harrah's took over the Rio (in January 1999), you had this very divergent culture enter the mix over there and I think it paralyzed the employees," the executive said. "They were used to an individual owner, Tony Marnell, who was accessible and whose philosophies were very clear and very aligned with the employee base.

"When Harrah's came in, it was counter to (Marnell's) philosophy and it created quite a disruption. A similar thing could happen with Caesars if they're not careful."

The second executive said Harrah's vast customer database should be a boon for Caesars, though he's puzzled at how easily that company seemed to give up the ship.

"It seems to me that these guys have just decided they're out of the game, are going to let it go and have had enough," he said of Caesars' corporate bosses.

One party caught in the middle of the proposed deal -- literally -- is the Imperial Palace, a 2,700-room hotel-casino located directly between Harrah's Las Vegas and Caesars Entertainment's Flamingo.

On Monday, Imperial Palace spokesman Jeremy Handel took a pragmatic approach to the proposed merger, conceding a combined Harrah's-Caesars would give the expanded company a competitive advantage in areas such as marketing and setting room rates.

Still, Handel noted his privately owned hotel-casino can't sway the deal in one director or another and must instead concentrate on its own business efforts.

"There's nothing we can do about it other than stick to our own formula," Handel said, adding the Imperial Palace caters to a Middle American, value-oriented client base that he said largely differs from its neighbors' target customer bases.

"It is going to be difficult for some of the independent properties but everybody seems to have their own focus. It's going to be a matter of honing in on your niche and taking advantage of that," he said.

Handel also said he was not aware of any negotiations to sell the Imperial Palace, whose age and prime location would make it an ideal target for redevelopment should the site become available. Owner Betty Engelstad said last year she had no plans to sell the property built by Ralph Engelstad, her late husband who died in November 2002.

"We're doing well, especially this year," said Handel, who declined to cite specific dollar figures. "We're not for sale."