Caesars Board Accepts Harrah's Offer

19.07.2004, Lesen Sie hier den Bericht über «Caesars Board Accepts Harrah's Offer».

Las Vegas Gaming Wire LAS VEGAS -- An agreement in principle for Harrah's Entertainment to buy Caesars Entertainment for about $17 a share, or roughly $10 billion, was approved by each company's board of directors late Wednesday, sources close to the talks said. Details about the agreement, which will create the world's largest gaming company, were not available late Wednesday although sources said the companies will make an announcement this morning despite a few issues remaining to be ironed out.

The sale will be a combined stock and cash deal, with the final price depending on the price of Harrah's shares at a date that will be set by the final contract. Before the companies can complete the deal, they will need to win approval from federal antitrust officials and regulators in states where the two companies operate. Sources close to the negotiations said that executives from the two companies, with Caesars co- chairman Stephen Bollenbach and Harrah's President Gary Loveman being the driving forces behind the merger talks, were "set on getting the deal done."

Some sources were saying throughout the day Wednesday that executives were engaged in intense but friendly talks with an announcement imminent after coming close to agreement on all major points including the proposed purchase price. Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said earlier Wednesday that a fair market value for Caesars Entertainment would be "$18 a share, plus change."

A leverage buyout specialist said a sale price of $18.50 to $19 a share, at the outside, is likely and would be comparable to the $71 a share Las Vegas-based MGM Mirage is offering for Las Vegas- based Mandalay Resort Group. That acquisition deal was touted as the largest gaming industry merger ever which would create a gaming giant with a total of 28 hotel-casinos with annual revenues of $6.9 billion and cash flow of $2.1 billion. Analysts who asked not to be named said the proposed Harrah's-Caesars deal amounted to a case of trying to keep up with the Joneses, with neither Las Vegas-based company wanting to give up its claims to being the world's largest gaming company: Harrah's for having the most cash flow and Caesars for having the most revenue.

A combined Harrah's-Caesars would eclipse a MGM Mirage-Mandalay combination with a total of 53 properties, annual revenues of $9.4 billion and cash flow of $2.3 billion. However, the buyout specialist added that, for investors, the Harrah's-Caesars deal would come without the same quality of properties and without a majority owner with the reputation of Kirk Kerkorian, the controlling shareholder in MGM Mirage. He said Kerkorian's name "is like gold on Wall Street," and adds confidence for investors. "We expect at a minimum the deal will come at some discount to Mandalay and with new stock being added to the mix to finance the takeout," the specialist added.

Leaks on Tuesday that the discussions were under way sent Caesars stock soaring to $16 a share Wednesday, up $2.08 or 15 percent on 33 million shares, 15 times normal trading volume. Harrah's closed at $50.98, down $1 a share, or 2 percent, on 2.7 million shares, triple normal trading volume. Wall Street analysts said Harrah's stock slipped during the day not because of concerns about the merger, but because there will be some dilution of the stock or because the company will issue more stock to finance the merger.

Some analysts doubted that Harrah's, the only gaming company with investment grade debt, would be willing to risk its credit ratings and the increased cost of capital that would entail. They said an all-cash deal, like MGM Mirage's purchase of Mandalay, would increase the company's debt-to-cash flow ratio from 3.6 to six. A higher ratio makes it more expensive for a company to finance its debts, just as added debt makes it more difficult for individuals to pay off loans.

However, they also said it is likely Harrah's will use a stock offering already registered with the federal Securities and Exchange Commission to finance the deal, which would allow it to protect its credit ratings. Greff said buying Caesars Entertainment will give Harrah's a significant presence on the Strip for the first time, which Loveman has called an important goal for this company. In addition to operating the upper-tier Caesars Palace, Caesars also owns the Flamingo, Bally's and Paris Las Vegas on the Strip. However, because Harrah's owns and operates an extensive network of casino and riverboat operations in 13 states, it also opens up significant antitrust issues in certain jurisdictions, including Atlantic City, Mississippi, Indiana and, possibly, Las Vegas, he said. "It's great for Caesars' shareholders. For Harrah's, there are more questions than answers," Greff said, noting the proposed merger will raise antitrust and market share concerns for federal and state regulators.

Deutsche Bank analyst Marc Falcone said regulators will almost certainly force divestitures in Atlantic City and Lake Tahoe, and that state laws limiting gaming licenses will require a divestiture in Indiana, to win regulators' approval. "In order for a transaction to be consummated, it would require significant divestitures in my mind, which raises the questions of what Harrah's is going to buy," he said. Analysts also said the Harrah's deal is likely to give Kerkorian heartburn because it will complicate his purchase of Mandalay. Analysts have been speculating that the Mandalay acquisition could be done without state or federal regulators forcing the sale of any hotel-casinos except in Detroit, where both MGM Mirage and Mandalay Resort own or jointly own casinos. However, with the two mergers happening at the same time, they said it is likely regulators will be tougher on MGM Mirage and there is a greater likelihood it will be forced to sell off individual properties it wished to retain after its merger.

Executives from Harrah's and Caesars Entertainment were unavailable for comment Wednesday, but MGM Mirage spokesman Alan Feldman said his company doubts there will be any fallout from the Harrah's deal. "We do not have any objection to the deal discussed in media reports and we don't think this transaction, should it occur, would have any impact on the acquisition of Mandalay," he said. Still, analysts said at a minimum the Harrah's-Caesars merger will slow down, and possibly stall, the MGM Mirage-Mandalay deal, even if no property sales are required.

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Wall Street Reacts Negatively to Merger

NEW YORK -- Wall Street reacted swiftly and negatively to Thursday morning's announcement of the gaming industry's latest megadeal creating a gaming behemoth with annual revenues of more than $9 billion. "It's the opposite of the Odd Couple," one analyst who asked not to be named said of the Harrah's Entertainment agreement to buy Caesars Entertainment for about $9.4 billion. "The two companies have such similar profiles they'll get scale but they won't get any synergies" like MGM Mirage expects from the Mandalay Convention Center when it completes its pending $7.9 billion purchase of Mandalay Resort Group, he said. "Strategically, it's just not anywhere nearly as good a deal as the Mandalay deal, especially financially," the analyst said.

Investors agreed with the analysts' criticisms, sending both companies' stock down sharply on Thursday. Harrah's closed Thursday at $47.91, down $3.07, or 6 percent, on 9.9 million shares, 10 times normal trading volume. Caesars Entertainment closed at $15.05, down 95 cents, or 6 percent, on 36.5 million shares, 13 times normal trading volume. Another analyst called the deal a "poor cousin" for Caesars investors compared with the MGM Mirage- Mandalay merger.

Others said the agreed-upon price of about $16.96 per Caesars share is below the fair market value of $18 or $18.50 a share, and noted that the deal is structured so even that price can drop if investors keep dumping Harrah's stock. "They didn't do such a good job in maximizing share price," one analyst said. Under the agreement approved by both companies' boards late Wednesday night, Harrah's agreed to assume approximately $4.2 billion in Caesars debt and pay $1.8 billion in cash plus 66.3 million of its shares, worth about $3.4 billion. However, Harrah's Chief Financial Officer Chuck Atwood said in a Thursday morning conference call with analysts that the agreement includes no "collar," or minimum share price, so the price of the deal could drop, or increase.

Analysts and industry insiders were surprised by the lack of a collar that would kill the deal or adjust the price if Harrah's stock drops significantly. Instead, the agreement requires the buyout to proceed regardless of Harrah's stock price. "I'm surprised. There's always a collar. The price of Harrah's stock can fall to the gutter and they'll just get Caesars at a bargain," said one Wall Street analyst who asked not to be named. "It's just a bad deal. I have no idea why they did it," another source close to the negotiations said. Some analysts said Caesars Entertainment co-chairman Stephen Bollenbach and Harrah's President Gary Loveman were the driving forces behind the sales negotiations. "But I don't know if they listened to any of their executives. With no collar, the deal doesn't smell right and you notice (Caesars Entertainment President) Wally Barr wasn't even in on the conference call (with analysts Thursday)," one analyst said.

Sources close to the negotiations said the talks, which began four weeks ago after the MGM Mirage- Mandalay deal was announced, were friendly at the board level but hostile at the management level. A local industry insider who called it a "horrible deal" said: "Caesars people just rolled over and Loveman should have his head examined." "Bollenbach wanted it to go and they went. The MGM Mirage-(Mandalay) merger is a big deal. This is a non-event," he said.

Executives from both companies were unavailable for interviews Thursday. Harrah's Chief Operating Officer Tim Wilmott and Chief Financial Officer Chuck Atwood joined Loveman on the conference call. No executives from Caesars participated in the conference call. Loveman said the purchase of Caesars Entertainment, the largest buyout in the history of the gaming industry, will solidify Harrah's position as the premier gaming company in the United States. He also called the financial terms fair to both companies although he acknowledged that there would be difficulties integrating the two companies. Nevertheless, he said Caesars Entertainment has "the right assets" that mesh well with Harrah's expansion plans, that Harrah's can manage the assets better "than the incumbent," and that they are being bought at a "reasonable price." Loveman said Harrah's will mainly operate under the Harrah's, Horseshoe and Caesars brands.

Harrah's recently completed its $1.45 billion merger with Horseshoe Gaming Holdings Corp., which operates riverboats in Bossier City, La.; Tunica, Miss.; and Hammond, Ind. Wilmott added the Caesars properties are particularly attractive, except for the high-end casino areas at Caesars Palace, which will have to be reviewed during the integration process and may be closed. Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said other negatives of the proposed deal include the likelihood the new company will have to sell off many casino operations in Atlantic City, Mississippi, Nevada outside the Strip and Indiana because of overlapping properties and antitrust concerns. He said the possibility of divestitures is particularly troubling because Harrah's will be in a "forced sale" situation and will not be able to get prices that represent the same multiple of price to cash flow that the Caesars Entertainment purchase will likely command.

However, Greff said there are also likely to be substantial benefits from the deal if it goes through. "We understand Harrah's desire in wanting a stronger Las Vegas Strip presence, a stated goal, in order to export Harrah's gamers from around the country to the Strip," he said in an advisory to investors Thursday.

In addition, he said Harrah's use of its total rewards program technology and database management is unparalleled, so the merger should put the combined company in a position to increase market share and financial returns. Merrill Lynch analyst David Anders said the deal also makes sense strategically because of potential cost savings, improvements that have been made at Caesars Palace in Las Vegas and the chance to own three large casinos in Mississippi. "However, we believe that obtaining approval from the New Jersey Gaming Board could be the largest hurdle," he said, referring to the antitrust issues that will be raised.

Analysts expect federal and state authorities will carefully review the proposed merger for its possible anti-competitive impact. Harrah's Entertainment operates 28 casinos in 13 states under the Harrah's and Showboat names and has about 41,000 employees. Caesars operates 28 properties worldwide and has about 54,000 employees.

The agreement announced Thursday is still subject to approval by shareholders and state and federal regulators. The deal is expected to close in about a year.

Das Casino gehört zu Caesars Entertainment. Caesars Entertainment Inc. wurde 1937 als Harrah's gegründet und wurde 2010 in Caesars Entertainment umbenannt. Besitzer sind die Investment-Firmen Apollo Global Management, TPG Capital und The Blackstone Group.

		
 
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