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Harrah’s Casino Sold
By Glenn Haussman
Harrah’s Entertainment (NYSE: HET) is going private. In an astounding $27.8 billion deal (including debt), the world’s largest gaming company has agreed to a takeover by Texas Pacific Group (TPG) and Apollo Management, L.P.
Harrah’s Sold In $16.1 Billion Deal
The deal is for $16.1 billion in cash and the assumption of $10.7 billion in debt.
The agreement calls for the purchase of all outstanding shares at $90, an approximately 36 percent premium over Harrah's closing share price on September 29, 2006, the last trading day before disclosure of the initial offer made by Apollo and TPG to acquire Harrah's for $81.00 per share. This week Harrah’s shares have been hovering around $82. The deal is expected to take up to a year to close and is subject to stockholder approval and regulatory nods.
"In Apollo and TPG, we will have owners who share our vision for Harrah's, are fully supportive of our current strategy and are committed to helping us execute on it. This will be a change in ownership, not a change in direction," said Gary Loveman, Harrah's chairman, chief executive officer and president. "Harrah's management team and its 85,000 talented employees look forward to working with Apollo and TPG as the Company moves into the next phase of its growth and development."
"After careful consideration of the full range of strategic alternatives, the Special Committee and the full Board concluded this transaction is in the best interest of Harrah's stockholders," said Robert Miller, co-chairman of the Special Committee, which was tasked with evaluating the takeover bid. "Apollo and TPG are both leading private equity firms with proven track records and strong reputations."
Under the merger agreement, Harrah's may solicit superior proposals from third parties during the next 25 days. The board of directors of Harrah's, through its special committee and with assistance of its independent advisors, intends to solicit superior proposals during this period. There can be no assurances that the solicitation of superior proposals will result in an alternative transaction. Harrah's does not intend to disclose developments with respect to this solicitation process unless and until its board of directors has made a decision.
At Hospitality Real Estate Counselors (HREC), vice president Chris Stein told onlinecasinocrawler.com the $90 selling price confirms his firm’s original belief the original asking price was a little low. He also said the real opportunity is the ability to grow the company without the scrutinizing eyes of Wall Street examining every move.
“This current deal that made a little more sense and is a great deal all around,” said Stein. “This is an exciting opportunity for the private equity firms because the real opportunity in this deal is in the future development opportunities with Harrah’s.”
In an investor’s note, Bear Sterns analyst Joseph Greff said his firm believes the deal “passes muster with shareholders.” The note evaluated valuation implications and mentioned that for the next few years it will have a positive effect for the competition. Bear Stern calculates multiples of 11.7x, 10.5x, & 9.6x our 2006, 2007, & 2008 EBITDA estimates, respectively. The note also said that the analysts believe “if HET were to pursue an aggressive CapEx program in LV (with meaningful displacement/disruption), this would likely benefit existing LV Strip operators, namely MGM & WYNN.”
Though late bidder Penn National Gaming made an attempt to gain control of the company, the Harrah’s special committee didn’t believe that deal was as strong for tits current stockholders.
At HREC, Stein said that if Penn had won the bid they would probably have had to split up the company, therefore devaluing the Harrah’s Total Rewards program. The loyalty comp program, said Stein, is the “gold standard” in the casino industry and allows a lot of cross marketing between properties: Something that could have been lost under Penn ownership. It’s widely expected Penn will look to make a deal with another company shortly.
Finally, it is in doubt whether the company will continue to pursue major redevelopment plans for the Las Vegas Strip and in Atlantic City. The Atlantic City plan was due to be unveiled last month, while plans for The Strip were to be made public early next year.
© Copyright 2006 Online Casino Crawler This material may not be published, broadcast, rewritten, or redistributed.
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