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Harrah's - Caesars deal
boosts cos.' power
LAS VEGAS (AP) - Harrah's Entertainment Inc.'s $5.2
billion deal to buy Caesars Entertainment Inc. would
rearrange the industry's hierarchy, creating the
world's largest gambling company and leaving two
casino giants controlling most of the Las Vegas
Strip's most-prized megaresorts.
The blockbuster deal announced Thursday eclipses
last month's $4.8 billion MGM Mirage merger wi th
Mandalay Resort Group.
Harrah's not only leapfrogs MGM Mirage on the world
stage, it gains the high-profile place it has long
sought in Las Vegas - if regulators approve the
deals, possibly by next year.
The transactions would leave 16 major hotel-casinos
in the gambling capital in the hands of the two
combined companies, and both competing for a broad
spectrum of tourists. Of the 32 hotel properties on
the Strip, about 25 are considered major.
"These are the right assets for the development of
our strategy," Gary Loveman, Harrah's president and
chief executive, said in a conference call Thursday
to announce the agreement. "We believe that these
assets are worth more in our hands than in the
incumbent's hands. We believe we have acquired them
at a reasonable price."
Under terms of the deal, Harrah's will pay $1.8
billion in cash and exchange about $3.4 billion in
Harrah's stock for all shares of its Las Vegas-based
rival.
Harrah's also will assume about $4.2 billion in
Caesars Entertainment debt.
The offer to buy Caesars caught some gambling
analysts off guard because Loveman had said he
wasn't interested in the company when MGM Mirage was
negotiating to buy Mandalay. Loveman changed his
mind after that agreement was signed and opened
talks with Caesars last month, a source familiar
with the negotiations said.
With the marriage, Harrah's would immediately be
able to cater to a wealthier clientele with the
addition of the newly revamped Caesars Palace.
Harrah's has traditionally attracted more casual yet
loyal gamblers.
The buyout gives Harrah's a major presence on the
Strip, one of the company's strategic goals. Before
it only had Harrah's on the famous stretch and the
off-Strip Rio.
"Caesars provides us access to new markets and new
customers," Loveman said.
Harrah's also would be able to use its technology
and extensive customer database to help improve the
bottom line at the underperforming Caesars
properties.
MGM Mirage, with its cash buyout of Mandalay Resort
Group, would own the glittery Mandalay Bay, the
Bellagio, MGM Grand, The Mirage and Circus Circus
among others.
But MGM Mirage, with revenues of more than $6
billion, would find itself second to Harrah's and
its total revenues of about $8.8 billion. That
number could drop if the company must divest
properties to appease antitrust regulators.
Currently, Caesars and Harrah's both operate 28
casinos each, doing business in Mississippi,
Indiana, New Jersey, Louisiana, Illinois and North
Carolina. Caesars also runs casinos on four
continents. Together, Harrah's would have more than
95,000 employees.
Standard & Poor's said Thursday it "expects that
Harrah's will divest assets in some jurisdictions as
a result of the combination. Harrah's will own three
gaming licenses in Indiana but regulations permit
ownership of only two plus 10 percent of a third."
Also on Thursday, Standard & Poor's revised its
rating outlook on Harrah's Entertainment Inc. to
negative from stable.
"The outlook revision on Harrah's reflects the
increase in financial leverage that will occur as a
result of the transaction," according to Standard &
Poor's.
Boyd Gaming recently closed a $1.3 billion deal with
Coast Casinos, creating the third-largest gambling
operator in the country behind Harrah's and MGM
Mirage if the deals happen. Boyd Gaming will have
revenues of about $2 billion.
Mike Cowie, a former FTC merger-litigation chief and
now an antitrust lawyer in Washington, D.C., said
MGM Mirage probably faces more antitrust issues than
Harrah's.
Cowie said Harrah's assets are spread across the
country, while MGM Mirage is concentrated in Las
Vegas.
But both deals will be analyzed carefully, Cowie
said.
Gambling analysts don't think tourists will
immediately notice the shake-up.
"The average consumer may not be concerned with or
differentiate between the eventual corporate owners
of Strip assets," said John Mulkey, a Bear Stearns
gambling analyst in New York. And competitors of the
gambling titans probably won't be affected
significantly, Mulkey said.
"Boyd moves up the market cap food chain by default,
but should not be affected noticeably by this
transaction," he said. "If anything, competitors in
consolidating markets should benefit by less
aggressive competition."
Shares of Caesars dropped 95 cents, or 5.9 percent,
to close at $15.05 Thursday on the New York Stock
Exchange. Harrah's shares fell $3.07, or 6 percent,
to close at $47.91.
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