Bid for Harrah's draws skepticism

14 December 2006

LAS VEGAS, Nevada -- The board of directors of Harrah's Entertainment, meeting at an undisclosed location in New York on Wednesday and weighing potential takeover offers, didn't come to a conclusion about the future of the Las Vegas-based casino giant.

Sources close to the matter said the board may not reach a consensus until today or possibly later.

Sources familiar with the negotiations said regional casino operator Penn National Gaming is willing to pay $88.50 a share to acquire Harrah's. The figure would top a reported $87 a share offer from two private equity firms that have been bidding to acquire the Las Vegas-based casino operator since Oct. 2.

One financial source, however, disputed the Penn National bid, saying the company would have to file documentation on the offer with the Securities and Exchange Commission. As of Wednesday afternoon, Penn National had not filed paperwork with the SEC involving Harrah's.

Gaming analysts have speculated that Penn National, which is headquartered in Wyomissing, Pa., is interested in acquiring several of Harrah's properties, possibly the Rio in Las Vegas and one of the company's four Atlantic City casinos.

On paper, Penn National buying out Harrah's seems far-fetched, according to several gaming analysts.

A deal at $88.50 per share would be valued at almost $16.5 billion, based on 186 million outstanding shares of Harrah's stock. It would also mean that a smaller operator, with 16 casinos and racetracks in 12 states and Canada, was buying the gaming industry's largest casino conglomerate.

Harrah's operates more than 40 casinos in 13 states under such brands as Harrah's, Caesars and Horseshoe. In addition, the company owns the lucrative World Series of Poker.

In 2005, Harrah's reported earnings of $236.4 million on revenue of $7.1 billion. Penn National, that same year, earned $120.9 million on revenue of $1.4 billion. Harrah's market capitalization is $14.6 billion; Penn National's market cap is $3.3 billion.

Sources said they expected the private equity groups, New York-based Apollo Management and Texas Pacific Group of Forth Worth, Texas, to increase their offer. The two companies bid $81 a share for Harrah's on Oct. 2 and reportedly kicked up the bid to $83.50 a share about 10 days later.

The Wall Street Journal and other financial media outlets have reported the companies had boosted the bid to $87 a share.

While company officials would not confirm the existence of the meeting, sources said Harrah's board members were gathering in New York to discuss the offers. The company's nonmanagement board members have been evaluating the private equity groups' offer since October.

Hilton Hotels co-Chairman and Chief Executive Officer Stephen Bollenbach, who is a nonmanagement member of the Harrah's board, was conducting an analyst meeting in New York on Wednesday morning for his hotel company, which is the reason the Harrah's meeting took place on the East Coast.

Bollenbach declined to comment to Bloomberg News about whether Apollo Management and Texas Pacific need to raise their bid to take over the casino company.

"Well, I'm a director, and I'm just not going to let myself talk about Harrah's," Bollenbach said.

More than 10.8 million shares of Harrah's, 31/2 times the average daily volume, were traded Wednesday on the New York Stock Exchange. Shares in the company closed at $78.50, down $1.66, or 2.07 percent.

Shares of Penn National, which trade on the Nasdaq National Market, hit a seven-month high during Wednesday's session. The company's stock price, up as much as 4.6 percent during the day, closed at $39.33, up 26 cents, or 0.67 percent.

Penn National's stock price has risen 26 percent over the past three months.


Related Links
Penn National Gaming, Inc. Gaming Vendor Information
Caesars Entertainment Ownership Details
Penn National Gaming Ownership Details
Penn National Gaming Software Details


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