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Rod Smith

Premerger Dealings: Colony Capital Bid on Four Casinos Could Speed Up Caesars Deal

31 August 2004

Harrah's Entertainment signed an agreement with Colony Capital on Friday to sell four key properties involved in its $9.4 billion buyout of Caesars Entertainment, a move that could speed the regulatory process for the merger, insiders and experts said Monday.

Harrah's put out a request for bids after its July 14 agreement with Caesars Entertainment, seeking buyers for some of the less-critical properties it would own after the merger but were raising antitrust concerns, industry insiders who asked not to be named said.

Colony Capital, which recently bought the Las Vegas Hilton and owns Resorts International near Atlantic City, submitted the best initial bids on four properties: Atlantic City Hilton and Bally's Tunica, both owned by Caesars, and Harrah's Tunica and Harrah's East Chicago, insiders said.

They said that together, the four properties should command a price of about $1.3 billion.

Caesars Entertainment spokesman Robert Stewart said his company doesn't comment on possible mergers and acquisitions and Colony spokesman Owen Blicksilver declined to comment. Harrah's spokesman Gary Thompson failed to return telephone or e-mail messages.

Sources, however, said Harrah's has entered a 20-day exclusive deal for Colony to put together a definitive offer to buy the four principal properties.

The sources said strong interest has also been expressed in the Hilton Lake Tahoe, but from a different buyer that would be part of a separate deal.

Analysts said that if the Colony deal fails to go through, other substantial suitors have expressed interest in properties that Harrah's would own following its merger as well as properties involved in MGM Mirage's $7.9 billion deal to buy Mandalay Resort Group.

The sale of the four properties also would reduce the size of the merged Harrah's to about the same size as the emerging MGM Mirage and establish Colony as a big-league player in the gaming industry.

One analyst who asked not to be named said the deal would make good sense for Harrah's because the four properties involved are not central to the company's strategic goal of increasing its presence on the Strip.

"By getting rid of select properties, it gets rid of issues the (Federal Trade Commission) wants to deal with and possibly accelerates the (regulatory review) process," he said.

Marc Schildkraut, a former assistant director of the FTC, said if agreement is reached with Colony, it could cut months off what will still be a tough regulatory review.

Schildkraut, now a partner in Howrey Simon Arnold & White, a Washington, D.C.-based law firm specializing in antitrust law, on Friday said antitrust issues for Harrah's arose mainly in Atlantic City, where the combined company would own five of 12 casinos; Tunica, Miss., where it would own five of nine casinos; and New Orleans, where it would own two of four casinos.

But the Colony deal could convert the FTC investigation into a review of whether the purchases solve the proposed merger's antitrust issues and whether Colony is an acceptable buyer, he said, rather than a full-blown investigation into Harrah's, Caesars Entertainment and the gaming industry.

Schildkraut said it is not unusual for the FTC and companies working on mergers to try to reach such settlements to expedite the acquisition process.

The biggest issues for the FTC would then be whether the sales solve the problems, whether Colony as a buyer raises added issues and whether Colony has sufficient capital to complete the deal.

"That could potentially expedite it a good bit, but it won't cut it from six months to two weeks. It's still going to take some time," Schildkraut said.

Colony Capital has been one of the world's largest independent buyers of real estate-related assets over the past 12 years, investing more than $10 billion in more than 5,000 assets.

Regulators would still have the authority to order the divestiture of specific hotel-casinos if the proposed merger is seen as seriously damaging competition in any given area, depending on how regulators define the geographic market.

Analysts also said Colony has a tentative deal to sell some of the frontage land at the Las Vegas Hilton, which it would use to help finance the purchases of the four added gaming operations.

Premerger Dealings: Colony Capital Bid on Four Casinos Could Speed Up Caesars Deal is republished from