Colony Capital to Buy Harveys for $420 Million

Harveys Casino Resorts--owner of the largest gambling resort in Lake Tahoe--said Monday that it has agreed to be sold to Los Angeles-based Colony Capital Inc. and a group of Harveys’ top management in a deal valued at $420 million.

The deal would give Colony, a huge private real estate investment firm, entry into the gambling business and allow Harveys to tap into Colony’s deep pockets to finance its expansion. Colony’s financial backing will be a big help if Harveys seeks to remain independent in a field where the industry giants--such as Hilton Hotels Corp.--are gobbling up smaller rivals.

“We believe it’s a company that can be a platform for growth,” said Kelvin Davis, president of Colony Capital. Davis said the acquisition could “expand the Harveys franchise into other markets over time.”

Both companies had tried and failed in recent years to find suitable partners to expand in casino gambling. Last year, Harveys sold its 40% stake in Hard Rock Hotel & Casino in Las Vegas to partner Peter Morton after a disagreement about expansion plans. Colony dropped plans to invest $125 million in Donald Trump’s 728-room Castle Casino Resort in Atlantic City.

Holders of Harveys’ common stock will receive $28 in cash for each of their shares, or a total of about $302 million, under terms of the deal. Including the assumption of debt, the total price tag is about $420 million.

The deal was greeted warmly on Wall Street, where investors bid up Harveys shares. They surged $4.31 to close at $27 on the New York Stock Exchange.

However, securities analyst Bruce Turner at Salomon Smith Barney said he thinks the $28-a-share price is far too low and that he expects other bidders to appear. Harveys said it is confident that Colony’s offer will not be seriously challenged.

Harveys, which was founded in 1944, owns just three gaming properties--in Lake Tahoe, Nev.; Central City, Colo.; and Council Bluffs, Iowa--but the company’s management and financial skills are widely respected. Industry observers considered the firm a likely takeover candidate.

Harveys’ top management, including Chairman and President Chuck Scharer, would end up with a 10% ownership stake in the Lake Tahoe, Nev.-based company.

Owners of about 40% of Harveys stock--including the firm’s largest shareholder, the Ledbetter family--have already agreed to support the acquisition. It still requires the approval of two-thirds of all shareholders as well as state gambling regulators. Final government approvals could take six to nine months.

Reuters was used in compiling this report.