Harrah's Entertainment Inc., the world's largest casino company, has agreed to a $16.7
billion offer from two private equity groups, two people with knowledge of the
negotiations said.
The agreement with Apollo Management Group and Texas Pacific Group came late last week
but lawyers for both sides have been working out the details, said the sources, who
spoke on condition of anonymity because of the sensitivity of the talks.
An official announcement on the deal could come as early as Tuesday, these people said
Monday. A third person close to the matter, who also spoke on condition of anonymity,
said a final agreement was "very close."
Spokesmen for Harrah's, Apollo and Texas Pacific declined to comment.
The deal values Harrah's at $90 per share and represents a 36 percent premium over
Harrah's share price on Sept. 29, the last trading day before Apollo and Texas Pacific
first proposed a buyout Oct. 2. The group also will assume $10.7 billion in debt.
Deliberations by a special committee of Harrah's board began after a deadline of Tuesday
last week for offers. Penn National Gaming Inc., a Wyomissing, Pa.-based race track and
casino operator, was eliminated from the bidding with its reported bid for $87 per share
bid, mostly in cash. A Penn spokesman did not immediately return calls for comment.
The decision ends more than two months of silence following the original offer by Apollo
and Texas Pacific for $81 a share.
Shares of Harrah's rose $2.68, or 3.4 percent, to close at $82.18 on the New York Stock
Exchange on Monday.
Private money has gone on a months-long shopping spree for casino operators, which are
valued for their cash-generating ability and significant real estate holdings.
The Harrah's deal is the biggest to take a public casino company private and ranks as
the seventh largest leveraged buyout in history, according to Thomson Financial. The
largest ever was RJR Nabisco Inc.'s $25 billion acquisition by Kohlberg Kravis Roberts &
Co. in 1998.
The premium paid and the willingness of leaders in the private equity industry to go
through the arduous process of becoming licensed casino operators, which could take more
than a year, represents a "breakthrough," said CIBC World Markets analyst David Katz.
"It certainly suggests an icebreaker like this could lead to more," he said.
Penn, meanwhile, may still be in the market either for Harrah's properties that may be
shed during the transaction or for other casino companies that do not have shares
concentrated in a single person or family, analysts said.
That ruled out companies such as Steve Wynn-controlled Wynn Resorts Ltd., Sheldon
Adelson's Las Vegas Sands Corp. and MGM Mirage Inc., majority owned by Kirk Kerkorian.
"We believe other small-cap companies could now become potential candidates for
acquisition by Penn National," said Morgan Joseph & Co. analyst Adam Steinberg in a
research note. "These companies include Boyd Gaming, which we view as a smaller version
of Harrah's and which has very little overlap with Penn."
"This isn't the last deal in the space," said Stifel Nicolaus & Co. analyst Rod Petrik.
Penn shares, which had been weighed down by concerns it would take on massive amounts of
debt to finance a buyout, rose $3.08 or 8.1 percent to close at $41.24 on the Nasdaq.
Boyd shares rose 62 cents or 1.4 percent to close at $46.62 on the New York Stock
Exchange.
Harrah's is the world's largest casino company by revenue, operating 39 casinos
nationwide, including Caesars Palace, Bally's and Paris on the Las Vegas Strip, and
Caesars and Harrah's in Atlantic City, N.J. It also has interests in Casino Windsor in
Canada, to be renamed Caesars Windsor in early 2008, and Conrad Punta del Este in
Uruguay.
By year's end, Harrah's is to acquire all the shares in U.K.-based London Clubs
International PLC, which operates seven casinos in the U.K., two in Egypt, one in South
Africa and is a consultant for a casino in Lebanon.
Harrah's also is pursuing projects in Singapore, the Bahamas, Spain and Slovenia.
Information von Richard Honegger
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