Harrah’s Weighs Buyout Offer
Flush with cash, two private investment companies are placing bets on the gambling business, anteing up nearly $15.1 billion in a bid to acquire the world’s largest casino company, Harrah’s Entertainment Inc.
Harrah’s said Monday that it had received an offer from Apollo Management and Texas Pacific Group to purchase all the company’s stock for $81 a share. The deal, if accepted, would be one of the largest buyouts in history.
The Las Vegas company insisted in a statement that there was “no assurance that Harrah’s will enter into this or any other transaction.” It acknowledged that its board of directors had assembled a committee to review the proposal and had hired UBS Securities as a financial advisor.
The news sent Harrah’s shares leaping $9.25, or 14%, to $75.68. The bid represented a 22% premium over Friday’s closing price but was short of the $83.33 price that the stock fetched in May.
The proposed deal would be the latest in a spree of colossal leveraged buyouts.
Some are laying odds that the bidding isn’t done yet. Apollo Management, Texas Pacific Group and Harrah’s didn’t return calls seeking comment.
“It’s probable that the deal will get done, and that it will get done at a higher price,” said David Brown, an analyst for Minneapolis-based Sit Investment Associates, which owns about 200,000 shares of Harrah’s stock. “By being private, Harrah’s can reinvest in their business without having to worry about what Wall Street is thinking all the time.”
Hungry for higher returns than they can get in stock and bond markets, institutional investors recently have pumped tens of billions of dollars into private equity firms, providing them with the capital to use in buyouts. Private equity investors hunt for companies that generate substantial cash flow or can be broken up and sold.
The bid for Harrah’s marks the largest inroad yet into the ca- sino market by private equity players. They have been reluctant in part because of the complexity involved in acquiring and keeping gaming licenses.
“A large portion of the value in this company can be attributed to future growth opportunities. They have a lot of irons in the fire,” said Jake Balzer, a senior analyst with Guzman & Co. “Certainly some of those opportunities are going to fall by the wayside if private equity were to buy them out.”
Harrah’s vast holdings in casinos and hotels are scattered throughout the U.S., including California and Louisiana, as well as internationally. The company derives nearly 75% of its revenue from gambling and owns such casino chains as Bally’s, Caesar’s and its namesake chain, Harrah’s.
But the company has struggled to gain a toehold in the lucrative Asian gambling market, forgoing a chance five years ago to bid for a license in booming Macao, where competitors have hit the jackpot. In May, Harrah’s was beaten by Las Vegas Sands Corp. in a licensing contest to build Singapore’s first casino.
Harrah’s has made its expansion plans clear in recent months and said Monday that it had acquired the Barbary Coast Hotel and Casino on the Las Vegas Strip from Boyd Gaming Corp. The 24-acre plot is the latest piece of land Harrah’s has accumulated in a continuous block of real estate on the Strip’s east side, where it already owns 350 acres, along with casinos such as Paris, Bally’s and the Imperial Palace.
The land grab is part of the company’s expected redevelopment of the area into a major “meta-resort,” said Anthony Curtis, president of LasVegasAdvisor.com, a website for visitors to the city.
“They’ve been strategically purchasing land in this area for years and years,” said Curtis, who pointed out that vast luxury resort complexes were the latest trend in Vegas development. Harrah’s rival MGM Mirage Inc. is in the midst of constructing the $7-billion City Center. Boyd is set to begin construction on its own complex next year at an estimated cost of $4 billion.
“The Barbary Coast was the final piece of the puzzle for Harrah’s. I would be stunned if a change of ownership changes those plans,” Curtis said.
In recent years, Harrah’s has made several high-profile acquisitions, including buying rival Caesars Entertainment for $9.4 billion in cash, stock and debt in 2005, which moved it ahead of MGM Mirage. In September, Harrah’s made a $531.8-million offer for London Clubs International, which would mark the company’s entrance into Britain.
Harrah’s reported a 22% rise in second-quarter net income to $128.6 million as revenue surged 67% to $2.37 billion after the acquisition of Caesars. The company had $10.7 billion in long-term debt as of June 30.
Rumors of the proposed buyout of Harrah’s were reported in Monday’s Wall Street Journal.
New York-based Apollo Management has holdings that include Borden Chemical and AMC Entertainment. Texas Pacific Group of Fort Worth has holdings that include Burger King, J. Crew Group, Continental Airlines and Metro Goldwyn Mayer.
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Company at a glance
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Founded: 1937, by Bill Harrah
Headquarters: Las Vegas
Employees: 85,000
Chief executive: Gary W. Loveman
Properties: 37 casinos under the Harrah’s, Rio Caesars, Bally’s, Horseshoe and Showboat names
Locations: 13 states, Canada and Uruguay, including Las Vegas, Reno, Laughlin, Nev., Lake Tahoe, Atlantic City, N.J., New Orleans, Phoenix and San Diego County
2005 revenue: $7.1 billion
Market capitalization: $14 billion
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Source: Times research
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Top 10 leveraged buyouts
1. RJR Nabisco Inc. by Kohlberg Kravis Roberts & Co.: $25.1 billion ($30.2 billion including debt). Announced Oct. 24, 1988.
2. BAA by Grupo Ferrovial, Caisse de Depot et Placement and GIC Special Invest Pte. Ltd.: $21.8 billion ($30.2 billion including debt). Announced Feb. 8, 2006.
3. HCA Inc. by Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private: $21.2 billion ($32.1 billion including debt). Announced July 24, 2006.
4. Freescale Semiconductor Inc. by Firestone Holdings: $17.7 billion ($17.5 billion including debt). Announced Sept. 15, 2006.
5. Harrah’s Entertainment Inc.* by Apollo Management and Texas Pacific Group Inc.: $15.1 billion ($25.7 billion including debt). Announced Monday.
6. Kinder Morgan Inc. by GS Capital Partners, AIG, Carlyle Group and Riverstone Holdings: $14.6 billion ($27.5 billion including debt). Announced May 29, 2006.
7. Vodafone by BB Mobile Corp.: $14.3 billion ($17.5 billion including debt). Announced March 17, 2006.
8. Coles Myer Ltd. by a group led by Kohlberg Kravis Roberts & Co.: $13.2 billion ($13.6 billion including debt). Announced Aug. 18, 2006.
9. Univision Communications Inc.** by a group led by Saban Capital Group Inc.: $12.1 billion ($13.4 billion including debt). Announced June 27, 2006.
10. SunGard Data Systems Inc. by a group led by Silver Lake Partners: $11 billion ($10.8 billion including debt). Announced March 28, 2005.
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Source: Thomson Financial
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*Proposed **Pending approval
