A Big Bid For Harrahs

Harrah%26#39;s is target of $15.1 billion leveraged offer

Two private-equity firms have targeted the world鈥檚 largest gambling company in a colossal offer.

By Suzette Parmley

Inquirer Staff Writer

Harrah%26#39;s Entertainment Inc., the world%26#39;s largest gambling company and biggest casino operator in Atlantic City, is the target of a $15.1 billion offer by two private-equity firms.

The Las Vegas company confirmed yesterday that it had received an offer to be acquired for $81 a share from Apollo Management, of New York, and Texas Pacific Group, of Fort Worth, Texas.

';In one sense, you wouldn%26#39;t think the largest company in the gaming industry would be taken private,'; said Brian Ford, an analyst at Ernst %26amp; Young in Center City, ';but there%26#39;s nothing to suggest these numbers are so large that it can%26#39;t readily happen.';

If completed, the deal would rank as one of the largest leveraged buyouts in U.S. history, according to Thomson Financial. Including the assumption of $10 billion in debt, the acquisition of Harrah%26#39;s would rank No. 4. The biggest deal is the pending purchase of hospital operator HCA Inc. in a transaction valued at $32 billion.

Harrah%26#39;s shares surged in trading on the New York Stock Exchange, closing at $75.68, up $9.25, or 14 percent.

The company said Harrah%26#39;s board of directors had set up a special committee of nonmanagement directors to review the offer. The committee has retained UBS Securities L.L.C. as its financial adviser.

';The special committee has not determined that a transaction is in the best interests of Harrah%26#39;s and its stockholders or that Harrah%26#39;s should not continue as an independent public company pursuing its business plan,'; said a statement issued yesterday by the company.

';Accordingly, there is no assurance that Harrah%26#39;s will enter into this or any other transaction.';

Harrah%26#39;s owns seven casinos on the Las Vegas Strip and four in Atlantic City: Bally%26#39;s, Caesars, Showboat and Harrah%26#39;s casinos. Harrah%26#39;s also owns half of the Harrah%26#39;s Chester Casino %26amp; Racetrack. It is not clear that any acquisition of Harrah%26#39;s by Texas Pacific and Apollo would lead gambling regulators to force the divestiture of any of the gambling company%26#39;s holdings.

Harrah%26#39;s casinos in Atlantic City made up 41 percent of the $5 billion in gambling revenue raised by the city%26#39;s casino industry in 2005. The four combined accounted for 41 percent of the city%26#39;s 40,687 slot machines and 39 percent of its 15,133 hotel rooms, according to the New Jersey Casino Control Commission.

Private-equity firms have been putting billions into mergers and acquisitions this year. Seven of the 10 biggest buyouts have been sponsored by private-equity firms in 2006, and the deals range from semiconductors and energy to media and grocery stores.

Ford, who tracks the gambling and retail industries, said private-equity firms%26#39; pursuit of casino companies was not surprising.

He cited two successful examples in the last 18 months: Colony Capital L.L.C. of Los Angeles, which acquired the Atlantic City Hilton casino from Caesars Entertainment Inc. in spring of last year, and more recently, Columbia Sussex%26#39;s purchase this spring of Aztar Corp., the owner of the Tropicana casinos in Atlantic City and Las Vegas.

';It%26#39;s been a trend,'; he said. ';The regulatory climate and the maturing of it has allowed major private-equity investors some of the same benefits allowed public companies relative to licensing individual shareholders.';

Ford said private-equity firms did not have to have every shareholder licensed if they owned stock in a casino company.

';Not every investor has to be licensed, which has enabled new capital formation,'; he said. ';We saw it with Columbia Sussex and Colony Capital.';

Ford said private-equity firms were attracted to casino stocks because of their returns. ';They%26#39;re good investments with good cash flow,'; he said.

But Ford said that even he was surprised by yesterday%26#39;s takeover target. ';I thought it would be the No. 4 or No. 5 company as the subject of a takeover by private equity, not the No. 1 company.';

Ford said private-equity firms had the advantage over public companies of not having to produce quarterly results, especially during construction phases, to appease Wall Street.

Harrah%26#39;s was started 68 years ago in Reno, Nev., and it has grown rapidly through the years after a series of mergers and acquisitions.

The company%26#39;s biggest acquisition was the $10.4 billion purchase of Caesars Entertainment in the summer of 2005, which catapulted it into the world%26#39;s largest gambling company, with 36 casinos in the United States. Adding Caesars to its portfolio gave Harrah%26#39;s a brand that high rollers tend to frequent.

Its size and reach has enabled Harrah%26#39;s to create an enviable player-distribution network using Total Rewards, a popular player-loyalty program that allows customers to cash in their points at any Harrah%26#39;s property.

As news of the proposed takeover spread yesterday, Harrah%26#39;s announced it entered a deal with a unit of Boyd Gaming Corp. of Las Vegas to exchange about 24 acres that Harrah%26#39;s controls on the Las Vegas Strip for Boyd%26#39;s Barbary Coast Hotel and Casino. Financial terms for that deal were not disclosed. The transaction is expected to close in the first quarter of 2007.

Also, Standard %26amp; Poor%26#39;s lowered its ratings on Harrah%26#39;s corporate debt to speculative grade.

The company now has more than $1 billion worth of expansion projects under way in Atlantic City. It broke ground in the spring for a $550 million hotel tower for Harrah%26#39;s Atlantic City casino. It has a new $1 billion casino planned for Biloxi, Miss., where the company recently reopened, a year after Hurricane Katrina wrecked the Gulf Coast and its gambling industry.

One vulnerability for Harrah%26#39;s has been its inability to crack the growing Asian market. Unlike its biggest competitors, including Las Vegas Sands Corp., which recently won a bid to build a mega-casino in Singapore - and Wynn Resorts Ltd., run by gambling icon Steve Wynn, which has a lavish casino in Macau - Harrah%26#39;s has been shut out of Asia.

By the Numbers

4

Rank of the proposed acquisition of Harrah%26#39;s Entertainment Inc. by two private-equity firms among the nation%26#39;s biggest leveraged buyouts.

$15.1 billion

Value of cash portion

of the offer by

Apollo Management

and Texas Pacific Group.

36

Casinos Harrah%26#39;s

has in 12 states.

7

Casinos Harrah%26#39;s

has in Las Vegas.

4

Casinos Harrah%26#39;s has in Atlantic City.

A Big Bid For Harrahs

Well, we hadn%26#39;t gone public yet, but me, Ambrva ,CasinoMama and Allure did REALLY well last weekend and decided to pool our resources...

A Big Bid For Harrahs

Yeah, how did our plans to take over Harrah%26#39;s get leaked to the press? Not so sure I want to put my $100 into the pot now......

ACMama

ROFL.....Well, guess I would be a controlling partner--I won $1100 last weekend--my 1st trip to Mohegan in quite a while. I swear they know when you haven%26#39;t been there in a while. You magically win...

Good deal Term,hope this buyout goes through.Harrahs definetly needs an attitude adjustment.

Once we take over Harrahs, we%26#39;re going to buyout the Gold Spike in Vegas! ;-) We%26#39;re going to start only comp%26#39;ing rooms there unless you give us $100/hand at table games for at least 4 hours! ;-)

Maybe we can buy the Western as our ';overflow'; property....

ambrva--Sounds like a plan to me!!!!!!!!! I like your thinking.