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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Mergers and Acquisitions : Regulators OK Harrah's Deal

13 June 2005

Nevada gaming regulators on Friday green lighted Harrah's $9 billion purchase of rival Caesars Entertainment, dismissing concerns that competition among casino operators would suffocate under the weight of two companies controlling the bulk of the Strip's largest resorts.

During rare back-to-back hearings of the state Gaming Control Board and Nevada Gaming Commission, Harrah's executives said the transaction, which gives the company four additional Las Vegas resorts and a second property in Laughlin, would spark increased investments in Nevada and also boost local vendor purchases and corporate philanthropy. Advertisement

Harrah's Chairman and Chief Executive Officer Gary Loveman said the company, which in 2004 spent $385 million with local vendors and contributed $1.6 million to Nevada charities, would also maintain any corporate commitments previously agreed to by Caesars.

"As we told the board, we feel we have a bigger role," Loveman said following the two unanimous approval votes. "We're a company that was once headquartered in one place and is now headquartered here. We feel like we have been and will be an important part of life here in Southern Nevada."

Following the hearings, Harrah's executives said they will complete the transaction after the stock market closes Monday at 1 p.m. PDT.

That will make Harrah's the gaming industry's largest casino operator with more than 40 properties in 12 states, 95,000 employees and more than $8.5 billion in annual revenues.

In Nevada, Harrah's will employ 40,000 workers with a payroll of $1.5 billion. As a company, Harrah's expects to pay $252 million in taxes to the state.

Harrah's will operate six casinos in Las Vegas -- Harrah's Las Vegas, Caesars Palace, Bally's, Paris Las Vegas and the Flamingo on the Strip and the nearby Rio.

On the Strip, Harrah's will control 16,825 hotel rooms, or 22.3 percent of the total room base. The company will also control 17.7 percent of the Strip's slot machines and 21.2 percent of all Strip table games.

As a comparison, MGM Mirage, which closed its purchase of the Mandalay Resort Group in April, now controls 12 of the Strip's 42 resorts, 49 percent of the Strip's hotel rooms, 39.3 percent of the Strip's slot machines and 41.2 percent of the Strip's table games.

Gaming Control Board Chairman Dennis Neilander said the power of the Nevada economy and the competition that exists to bring in new customers outweighed the massive influence that Harrah's and MGM Mirage will wield.

"When you analyze the market, especially in Southern Nevada, at the end of the day the market is moderately concentrated," Neilander said. "But when you look at the number of different products offered in the market and the fierce competition that exists, it doesn't rise to the level of concern. Competition tends to drive competition. There is always a point where there perhaps tends to be too much consolidation, but this deal does not represent that point."

Gaming Commission Chairman Peter Bernhard said the changing dynamics of Nevada's casino landscape will make for an interesting case study concerning competition.

"I don't think you can stand in the way of consolidation and I think the benefits outweighed the negatives," Bernhard said. "I think it will be an exciting time to see how this plays out. The economics of the marketplace will play out to see who can survive and who can thrive in this type of environment."

Harrah's announced plans to buy Caesars for $9.4 billion 11 months ago. But, on Friday, the company said the actual transaction cost will be reduced by $400 million because Caesars has divested itself of five properties with proceeds going toward debt reduction.

During the presentation, Loveman said there would not be any layoffs at the company's casinos and about 70 percent of the corporate management would be retained. Current Caesars employees will work under their current benefit packages for at least a full year.

Loveman said the company would maintain operations at Strip properties, but it would explore a redevelopment plan for Bally's Las Vegas, including eliminating the Bally's name and giving the resort a new theme.

Mergers and Acquisitions : Regulators OK Harrah's Deal is republished from Online.CasinoCity.com.