Harrah's Buyout Could Bring Changes

When all was said and done, Harrah's Entertainment, the "Goliath" of gaming companies, which had a seemingly insatiable appetite for acquisitions, itself became the target of a buyout offer.

A pair of multibillion-dollar private equity funds swooped down last December to ink a $27.8 billion cash deal, including the assumption of $10.7 billion in debt, to acquire the gambling industry giant and seek to consummate the seventh biggest leveraged buyout in history.

Texas Pacific Group and Apollo Management, the firms that want to acquire Harrah's, are unlike high profile companies that have name brand identities among consumers. Nevertheless, they are powerful entities and well known on Wall Street for being among the world's largest buyout firms.

The spin behind the Harrah's deal is to achieve growth and realize full potential, but buyout companies also have a reputation, whether it be deserved or undeserved, for making upper management changes, selling off assets, and instituting layoffs.

Surely the strategy behind the buyout wasn't to turn Harrah's around. It already is the biggest and most successful casino operator in the world. So then how will the change impact the company, and, more importantly, Harrah's customers?

One ominous sign in the wake of the announcement was the departure of two top executives, including chief operating officer Tim Wilmott and senior vice president of operations Tony Santo.

Gary Loveman, Harrah's chairman, chief executive officer and president, is still on board and is unlikely to make a decision until the acquisition is official, which could take most of this year.

Harrah's ambitious plans for development of its Las Vegas properties may have to be delayed until the sale is finalized.

Recent speculation, especially in light of plans on behalf of the private equity firms to borrow against Harrah's extensive land holdings to finance the buyout, has it that some properties around the country may be sold.

One thing's for sure: Expansion into the lucrative international market will proceed full speed ahead with plans to open casinos across the United Kingdom as well as develop properties in the Bahamas, Spain, Slovenia, and the burgeoning Asian market, including Macau.

Domestically, it could be a different story. Harrah's doesn't want to damage the powerful cross-marketing and networking tool it has in Total Rewards, easily the most recognizable player's club in the industry.

Development and expansion in the United States, however, may be placed on the back burner. Downsizing is possible.

Meanwhile, work is continuing on the $485 million project to bring a new Horseshoe Casino to Hammond, Indiana. When that is completed in the summer of 2008, will the company reevaluate the Harrah's destination in Joliet, Illinois?

The company owns and operates 12 properties in Nevada and will soon ink a deal to acquire the Barbary Coast in a land swap with Boyd Gaming. The casino will be re-branded "Bill's" in honor of founder William Harrah.

Harrah's has a powerful presence in the heart of Las Vegas at the intersection of Las Vegas Boulevard and Flamingo. Where it takes that position now is anybody's guess.