Harrah's Gamble Not Without Risk

Excerpt from our One-Page WSJ Summary:

Licenses Are the Biggest Hurdle To a Deal for Harrah's

Summary: Harrah's Entertainment Inc. (HET) received a $15.1 billion offer from private equity houses Apollo Management and Texas Pacific Group which, at $81-a-share, represents a 22% premium over Friday's closing price of $66.43. The stock responded strongly, jumping 14% to $75.68. Joe Greff, casino analyst at Bear Stearns wrote: "We suspect the board of directors will just seek a higher price, citing its global development pipeline and Las Vegas land bank as a reason that the current proposal is inadequate." The largest gambling operator by revenues, Harrah's holdings include casinos (Caesars Palace and others), as well as a substantial real estate portfolio. However licensing could prove to be the most significant hurdle ahead of any potential acquisition: Apollo and Texas Pacific do not hold gambling licenses, and officials in the states in which Harrah's operates expect that achieving these licenses could take two years. This hurdle has traditionally kept private equity investors out of the casino sector. However the past few years have seen an increase of private equity interests in casinos. Colony Capital bought Harveys Casino Resorts in 1999, and its principals Thomas Barrack and Kelvin Davis were awarded casino licenses. Kelvin Davis is now a partner at Texas Pacific.
Related links: Full WSJ article • HET Press Release • Harrah's Seems Underwhelmed by Buyout Offer
Potentially impacted stocks and ETFs: Boyd Gaming Corp. (BYD), MGM Mirage (MGM), Trump Entertainment Resorts Inc. (TRMP)

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