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Best of Howard Stutz

Gaming Guru

Howard Stutz

Harrah's weighing takeover proposals

18 December 2006

NEW YORK -- All's quiet on the Harrah's Entertainment front.

On Friday, for the third straight day, there was no news on the future of the gaming industry's largest casino operator as a special committee of the company's board members pored over two multibillion-dollar buyout proposals and weighed a potential plan to recapitalize the Las Vegas-based casino titan.

After two days of meetings in New York at an undisclosed location, it was unclear if the Harrah's board had met again Friday or had reached a resolution. Sources said the three potential scenarios for Harrah's being discussed by the board were:

An estimated $15.5 billion joint buyout offer from private equity firms Texas Pacific Group and Apollo Management that would take Harrah's private. Sources have said the groups agreed to raise their offer to $87 a share for all outstanding shares of the company's stock.

A takeover bid from rival casino operator Penn National Gaming that was first reported in Thursday's Review-Journal and confirmed Friday by The Wall Street Journal. Sources said Penn National, which operates 16 casinos and racetracks in 12 states and Canada, had offered to buy the much larger Harrah's for $88.50 a share, a deal worth more than $16.5 billion. According to The Wall Street Journal, Penn and Harrah's shares would be combined into one company with a large debt load. Lehman Bros. and Wachovia would finance the takeover.

"I do think they're (Penn National) serious but I also don't think they'll win it," Eric Green, research director at Penn Capital Management in Cherry Hill, N.J., which owns 1.2 million Penn shares told Bloomberg News. "I just don't think the board is going to accept that bid."

A plan to recapitalize the company by borrowing money to give shareholders a large dividend or to repurchase shares to boost shareholder value.

"(The board of directors) are going to have to come to some sort of resolution soon because the shareholders are getting restless," said one financial source close to Harrah's who asked not to be named.

Harrah's, which grew substantially in 2005 when it spent $9 billion to purchase rival Caesars Entertainment, received an $81 a share buyout offer from the private equity groups on Oct. 2. The price was reportedly kicked up to $83.50 a share about 10 days later. After the board's special committee began reviewing the bid, Penn National surfaced as a suitor.

Sources told The Associated Press that the two days of board meetings in New York included all 11 members of the company's directors except Chairman Gary Loveman.

Harrah's shares rose 40 cents, or 0.51 percent, Friday to close $79.50 on the New York Stock Exchange. Penn National shares fell 84 cents, or 2.15 percent, to close at $38.16 on the Nasdaq National Market.

Harrah's weighing takeover proposals is republished from