Penn National Bids For Much Larger Casino Peer Harrah's

Gambling company Penn National made a mostly cash bid for its much larger competitor Harrah's Entertainment, challenging the current bid for Harrah's placed by private equity partners Texas Pacific and Apollo Management. The private equity group earlier in the week submitted an all-cash bid of $87 a share, and sources indicate Penn is offering $88.50. Harrah's currently trades at $79.10 a share, with a market cap of $14.7 billion vs. Penn's market cap of just $3.3 billion. The Penn offer, backed by Lehman Brothers and Wachovia, would create a joint entity with substantial debt. Harrah's is also considering a leveraged recapitalization, taking on more debt while paying shareholders a dividend or buying back stock. Penn stock has climbed 18.4% year to date, while Harrah's stock still trades well below the takeover prices due to the long period expected for casino licensing clearance.

• Sources: Wall St. Journal, Las Vegas Gaming Wire, Associated Press
• Related commentary: Who Will Acquire Harrah's This Time?, Las Vegas Sands: Dicey Valuation, Valuing the Casino Industry: Are There More Harrah's Out There?
• Potentially impacted stocks and ETFs: Penn National (PENN), Harrah's (HET) Competitors: Wynn (WYNN), Las Vegas Sands (LVS), Trump Entertainment Resorts (TRMP), Monarch Casino & Resort (MCRI), Pinnacle Entertainment (PNK).

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