Harrah’s shares shoot
upward on buyout offer

Oct 3, 2006 6:09 AM

Talking heads on CNBC’s early-morning financial show had just been noting that this was the period for Mergers & Acquisitions when word arrived that a private equity firm was talking with Harrah’s Entertainment Inc. (HET) about a buyout.

Harrah’s shares in pre-market opening shot up some $15 to the $80 level.

The talks became more specific when it was announced that a partnership of the private equity firms of Apollo Management and Texas Pacific Group had offered to acquire Harrah’s for $15.05 billion plus debt or the equivalent of $81 per share, a 22% premium on Friday’s closing price.

After the markets opened for trading, HET began trading in the $76 range, representing a 14% increase over Friday’s price.

Officials at Harrah’s recognized the bid publicly and said it had established a special committee of independent directors to review the offer. It also retained the services of UBS Securities LLC and Kaye Scholer LLP as its legal adviser.

The Harrah’s statement also included the warning that "the special committee has not determined that a transaction is in the best interests of Harrah’s and its stockholders or that Harrah’s should not continue as an independent public company."

The $15 billion bid, plus more than $10 billion of debt, values the company at more than $25 billion. These numbers would place the leveraged buyout among the financial market’s biggest.

The initial benefactors would be the stockholders who have seen the price of Harrah’s shares falter of late. In fact, just last week the respected gaming analyst, Harry Curtis of JP Morgan, lowered his rating of the stock to "neutral" from "overweight" after noting that he expected full-year earnings to be $3.53 per share, down from his previous estimate of $3.62 per share.

Curtis said he was concerned that increased promotional spending in Atlantic City may not cease any time soon.

"It is no surprise now that promotional spending is higher than expected post the opening of the expansion of the Borgata, but it is unlikely to abate in the seasonally softer period through April 2007," he was quoted as saying.

Also adding to the pressure for promotional spending was the expansion of gaming in nearby Pennsylvania.

Following Curtis’ downgrade, the Harrah’s shares fell $2.58 to $64.93 before rising by week’s end to $66.43.

Benefiting from the Harrah’s bid on Monday were the share prices of nearly all gaming companies. In early morning trading, the shares of Boyd Gaming Corp. (BYD), MGM MIRAGE Inc. (MGM), Wynn Resorts Ltd. (WYNN), Las Vegas Sands Corp. (LVS), Station Casinos Inc. (STN) and Pinnacle Entertainment Inc. (PNK) also showed substantial increases.

Boyd was a party to the Harrah’s news since it announced that it would recognize a $280 million non-cash gain when the trade of its Barbary Coast Hotel/Casino for 24 acres of continuous acreage of its Stardust property, owned by Harrah’s, was consummated during the first quarter of 2007.

And, late last week, Harrah’s extended its $530 million offer for Britain’s London Clubs gambling establishments.

Among the losers following the Harrah’s announcement were the holders of Harrah’s bonds whose ratings were lowered by Standard & Poor’s to below investment grade. S&P also placed the bonds on a ratings watch for another possible cut because of the buyout.

A revenue dispute

A coupon promotion instituted by Foxwoods Resort Casino is under fire by Connecticut officials who feel the state is being short-changed.

Under a 14-year agreement, Foxwoods, and its neighbor, Mohegan Sun, must pay the state 25% of its slot revenue in order to retain exclusive rights to slots operations.

Last month, Foxwoods began mailing $50 coupons to some of their customers as an enticement to generate more visitations.

But, Atty. Gen. Richard Blumenthal is crying foul, saying the promotional wagers should be part of the tribe’s gross operating revenues.

Supporting the casino’s position, however, is a ruling by Nancy Wyman, state controller, who said the promotions do not constitute a wager under the Internal Revenue Service definition.

First license

Danny Adkins has not set a date yet but he believes that his Mardi Gras Racetrack and Gaming Center, formerly known as Hollywood Greyhound Track, will be the first facility in Florida to offer Las Vegas-style slot machines when it opens next month.

The company was awarded the state’s first license since the voters of Broward County in Florida voted to permit pari-mutuel facilities to expand their gaming menu with the addition of slots.

The news was welcomed by officials of Magna Entertainment Corp. (MECA), operators of Gulfstream Park, and Isle of Capri Casinos Inc. (ISLE), whose harness racing facility, Pompano Park, also plans to introduce slots action.

THE INSIDER: Lakes Entertainment Inc. (LACO) moved a step closer with its plans to build a casino for the Shingle Springs Band of Miwok Indians in El Dorado County, Cal., by having the tribe agree to pay $87 million over 20 years to the county for highway and interchange improvements.

Australian-based Aristocrat Leisure Ltd. has purchased another 4.4% interest in U.S.-based PokerTek, the manufacturer of dealer-less poker tables. This increases Aristocrat’s holdings to 19.15% of PTEK.

Shares of International Game Technology (IGT) reached a 52-week high last week following the announcement that the company had better than expected stock buybacks and would increase its quarterly dividend from $0.12.5 per share to $0.13 per share.

Also, IGT said that Patti S. Hart, the newest member of the company’s board of directors, had been appointed to the audit committee and the compensation committee.

Churchill Downs Inc. (CHDN) announced that the board of directors had approved the hiring of Vernon Niven as the company’s executive vice president, technology and had established his salary at $300,000 per year.

Also, CHDN said it had completed the sale of Ellis Park racetrack in Henderson, Ky., to Kentucky businessman Ron Geary.

Genting International Ltd., the Malaysian gaming company, said that if it is selected for the second gaming license in Singapore, it plans to build a Universal Studios theme park with 20 major attractions.

Las Vegas Sands Corp. (LVS) announced that it has begun construction activities on the last two sites of the Cotai Strip’s first phase of development in Macau.

Magna Entertainment Corp. (MECA) has joined with Caruso Affiliated Co. to develop approximately 51 acres of undeveloped land surrounding the Santa Anita Racetrack in Arcadia, Cal.

WPT Enterprises Inc. (WPTE), operator of the World Poker Tour series, has promoted Scott A. Friedman to vice president of finance and corporate controller.