Harrah’s Chairman Gary Loveman gambled big, putting his job on the line when he persuaded directors to look at the offer for Harrah’s from two private equity groups.
"It was a gutsy all-in move by Gary, very high stakes poker," explained a source familiar with some of what transpired as directors sat down to mull the offer from Apollo Management and the Texas Pacific Group.
Here’s what happened: One of the sticking points in the several days of talks that led to acceptance of the offer that saw Apollo and TPG offer $90 a share for Harrah’s stock and assume about $10 billion in debt was a demand by a group of directors led by Steve Bollenbach who wanted the right to fire any member of senior management until the moment when the deal closes.
That demand was purportedly aimed at Loveman, who became the target of Bollenbach’s ire after the co-chairman of Hilton Hotels supposedly became convinced the buyout proposal was engineered by Loveman for too low a price. The initial offer in early October by the two funds was $81 a share.
But negotiators for TPG and Apollo balked at giving directors the right to fire any members of current senior management.
"We’re buying management," was the quote attributed to them.
And so Loveman won his first vote of confidence from the people who matter most — the two groups that have agreed to spend more than $17 billion buying out Harrah’s shareholders.
Ironically, the $90 dollar a share offer will mean an estimated $450 million pay day (based on an estimated five million shares) for Barron Hilton, a former member of the Harrah’s board and the co-chairman (with Bollenbach) of Hilton Hotels.
It was Bollenbach and Hilton who brought the proposal for Harrah’s to buy Caesars Entertainment in 2004.One of the results of that was Hilton being given a seat on the Harrah’s board for one year, a term that ended earlier this year. Bollenbach got a two-year term that expires in April.
"In a case like this where you see Bollenbach taking the stand that he did, you have to imagine Barron standing right next to him," our source said.
This is from a senior executive familiar with both men in a company having nothing to do with the Harrah’s deal.
"It makes you wonder," he continued, "if Steve had anything to do with the provision that allows Harrah’s 25 days to come up with a better deal."
Other sources familiar with Harrah’s strategy said acceptance of the buyout plan will add momentum to a streamlining plan at the corporate level that is expected to trim perhaps several hundred million in administrative expenses.
That’s apparently already begun with the pending departure of at least two executives — Anthony Sanfilippo, president of the company’s Central Division; and Anthony Santo, the senior vice president of operations, products and services.
But in a company like Harrah’s, where vice presidents have titles that often leave outsiders wondering what the job is all about, it is easy to imagine there will be other departures from the management ranks.
McKinsey & Company, which calls itself a "global management consulting company," has been brought in to offer its advice about what the Harrah’s of the future should look like. McKinsey seems to have been aboard at Harrah’s for quite some time, a fact that suggests the new look at Harrah’s was taking shape prior to the early October offer from Apollo and TPG.
Perhaps the day will come when in the interests of efficiency, Loveman will rip a page from the management style of the late Benny Binion and run Harrah’s from a booth in the Caesars coffee shop with a couple of cell phones and a BlackBerry to keep him company.
One of the expected steps to help develop added value will probably involve getting away from a regional approach to business and doing what’s necessary to enhance the appeal of three or four brands.
Loveman has previously said that the Harrah’s of the future will be pared down to about three resort brands — Harrah’s, Caesars and the Horseshoe.
An obvious fourth brand would be the World Series of Poker, which has demonstrated a global ability to generate revenue that has little to do with the numbers of bodies showing up in Las Vegas to play no limit hold ”˜em.