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Best of Howard Stutz

Gaming Guru

Howard Stutz

Mergers and acquisitions: Harrah's quiet about bids

13 December 2006

LAS VEGAS, Nevada -- A meeting that no one will confirm is taking place could determine the direction of the gaming industry's largest casino operator.

Almost 10 weeks after two private equity groups bid more than $15 billion to take Harrah's Entertainment private, the company's board of directors is expected to meet today and evaluate all potential offers for the Las Vegas-based company that operates almost 40 casinos in 13 states.

The Wall Street Journal and other financial media outlets reported that Harrah's board wanted all offers submitted by Tuesday.

Rival casino operator Penn National Gaming supposedly entered the fray for Harrah's last month to try to trump the bid.

The Wall Street Journal and Reuters reported Tuesday that Apollo Management of New York and Texas Pacific Group of Forth Worth, Texas, were raising the stakes. The two groups bid $81 a share for Las Vegas-based Harrah's on Oct. 2 and reportedly upped the price to $83.50 a share about 10 days later. The groups are now expected to bid $87 a share for the company, which would value Harrah's at close to $16 billion.

Management from Harrah's, Penn National and the two private equity groups won't discuss the matter on the record.

"I wouldn't be able to comment on any deadlines that have been reported and, traditionally, we never disclose when our board of directors meet," Harrah's spokesman Alberto Lopez said Tuesday.

What is clear is that an end might be on the horizon in the quiet bidding war for Harrah's.

"We're all waiting to see what the outcome will be," said Dan Ahrens, a Dallas-based portfolio manager who oversees the Gaming and Casino Fund. "Whatever happens and whichever direction the board takes, we believe it will be good for Harrah's stock price."

Analysts also did not believe Tuesday's announcement that Texas Pacific was part of private equity group that is spending almost $5 billion to take a travel reservations system operator private had anything to do with the Harrah's deal. Texas Pacific and Silver Lake Partners agreed to pay $32.75 a share for Sabre Holdings, the parent corporation of online service

Ahrens and other gaming analysts believe one of three events could happen today: Harrah's board will accept the private equity buyout; the board may strike some arrangement with Penn National to sell parts of the company; or the board may reject both offers and the company would consider a recapitalization measure as a way to boost the company's stock price.

Adam Steinberg, gaming analyst for New York-based Morgan Joseph Co., thinks Penn National may be bidding to acquire several pieces of Harrah's, possibly the Rio in Las Vegas and one of the company's four Atlantic City casinos.

Penn National operates 16 casinos and race tracks in 12 states and Canada. Penn National's market capitalization is $3.2 billion; Harrah's market cap is $14.6 billion.

Steinberg said Penn National Chairman Peter Carlino has been quoted in recent interviews as saying that he would like to bring the company to Las Vegas and Atlantic City, two markets where Penn National does not operate a casino.

"There are too many overlaps with Harrah's in different markets that makes it difficult to complete an overall purchase of the company," said Steinberg, who closely follows Penn National. "There would be too many parts that would have to be sold off. It seems they're looking at trying to get their hands on something."

Analysts said Tuesday's speculation boosted shares of Harrah's to a slight gain on a day when most of the gaming sector had an off session. Harrah's closed at $80.16 on the New York Stock Exchange, up 42 cents, or 0.53 percent. More than 5.2 million shares were traded.

Shares of Penn National also closed at $39.04 on the Nasdaq National Market, up $1.04, or 2.74 percent.

Ahrens said most observers watching the Harrah's drama unfold believe the bid will ultimately be $87 a share. He also thought Penn National was more interested in picking up one or two of Harrah's casinos.

"We may see a curve ball somewhere in the picture that changes things," Ahrens said.

Mergers and acquisitions: Harrah's quiet about bids is republished from