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Rod Smith

Mergers And Acquisitions: Sources Expect Sale of Las Vegas Hilton

25 December 2003

Park Place Entertainment Corp. is expected to announce today the sale of the Las Vegas Hilton to Colony Capital for $280 million, sources close to the deal said Tuesday.

Colony, a private, international investment firm focusing mainly on real estate-related assets and operating companies, is expected to close on the acquisition within six months.

The Las Vegas landmark, opened by Kirk Kerkorian in 1969 as the International and then the largest hotel in the world, is expected to continue to carry the Hilton name.

Industry sources said they expect Colony to build a new tower on the Las Vegas Hilton site. The sources added that operating a new tower, or the entire complex, as a time share operation is under consideration.

Nothing is known about Colony's plans for the more than 3,000 employees now working at the Las Vegas Hilton.

Park Place spokesman Robert Stewart declined to comment on the sale, and Colony Capital sources could not be reached Tuesday evening.

Wall Street analysts described the sale as a big plus for Park Place, which is changing its name to Caesars Entertainment Corp. on Jan. 6. The company has worked to reduce its debt and is struggling to return the luster to its Caesars Place brand.

"From the Park Place perspective, the $280 million price tag is significant," Deutsche Bank analyst Andrew Zarnett said. "They'll be able to focus capital and human resources back on the Strip, which is important to their future in Las Vegas, which clearly the Las Vegas Hilton isn't.

"Also, because the Las Vegas Hilton has been a cash flow underperformer, a sale of a multiple of 12 times (cash flow) will lead to a reduction in (debt) for the company which has been a primary goal for this management team," Zarnett said.

The sale "shows their commitment to following through on their objective of getting rid of their noncore properties," he said.

Colony was seen by Wall Street analysts as the leading contender among four bidders because its financing for the purchase was believed to be guaranteed by Goldman Sachs, the investment banker for the purchase, or another Wall Street banking interest.

Richard Alter, managing director of Financial Capital Investment Co., who made a move to buy the Aladdin; Crescent Heights-Condo, a condominium developer; and Marriott International, a nationwide lodging operator, were the other finalists on the deal, sources said.

Colony has a 50 percent interest in Accor, a gaming company in France, and the purchase is seen as the initial step by the company into operating as a multijurisdictional gaming company, sources close to the company said.

Colony, one of the world's largest independent acquirers and financiers of real estate-related assets, has invested more than $9 billion over the past 12 years in more than 5,000 assets through various corporate, portfolio and complex property transactions.

It bought Harvey's Resorts in 1998 and sold the company to Harrah's Entertainment in 2001. It also owns Resorts Atlantic City.

Wall Street sources said Colony is one of a small group of real estate investment teams with the capabilities to exploit some of the inefficiencies they say have plagued the Las Vegas Hilton in recent years.