Harrah's Ponders $15.1 Billion Buyout

Harrah's confirmed Monday they received a buyout bid for US$15.1 Billion Dollars from an investment group. The group consists of two private investment companies, Apollo Management and Texas Pacific Group. They offered to purchase all of Harrah's stock for US $81 a share.

At $81 a share, the bid is a 22% premium over last Friday’s closing price. As a result, Harrah's stock jumped 14%, to just under $76 a share Monday.

Since Harrah's owns the World Series of Poker (WSOP), many poker players may wonder how this bid and the unexpected passage of the Internet gaming ban by the US Congress last Friday will affect the WSOP.

If the WSOP cannot take U.S players who qualify for seats at online poker rooms, then the number of WSOP attendees will likely dramatically drop. Though the core casino business is the main appeal to equity firms for the buyout, the WSOP is a high profile part of the Harrah's family.

If this buyout proceeds, it would be the fourth largest in U.S. stock market history.

The Las Vegas- based company issued a statement saying there was "no assurance that Harrah's will enter into this or any other transaction." It acknowledged that its board of directors had assembled a committee to review the proposal and had hired UBS Securities as a financial advisor.

"It's probable that the deal will get done, and that it will get done at a higher price," said David Brown, analyst for Minneapolis-based Sit Investment Associates, which owns about 200,000 shares of Harrah's stock. "By being private, Harrah's can reinvest in their business without having to worry about what Wall Street is thinking all the time."

The Harrah's buyout bid is the largest play into the casino industry by private equity players.

The casino industry appealed to private equity firms earlier, since revenues have been growing and growing consistently over the past few years.

But previously, private equity players had been reluctant to enter the casino industry because of the complexity involved in acquiring and keeping gaming licenses. But now with so many investors unhappy with current returns on stocks and bonds, the casino industry is looking better.

Harrah's many holdings in casinos and hotels are scattered throughout the U.S., including California and Louisiana, as well as internationally. Nearly 75% of the company revenues come from gambling, from such casino chains as Bally's, Caesar's and its namesake chain, Harrah's.

To date, the company has missed chances to enter the lucrative Asian gambling market. First was five years ago, when it lost a bid for a license in lucrative Macao. Next was in May, when the Las Vegas Sands Corp. beat Harrah's in a licensing contest to build Singapore's first casino.

Harrah's reported a 22% rise in second-quarter net income to $128.6 million as revenue surged 67% to $2.37 billion after the acquisition of Caesars. The company had $10.7 billion in long-term debt as of June 30.

New York-based Apollo Management has holdings that include Borden Chemical and AMC Entertainment. Texas Pacific Group of Fort Worth has holdings that include Burger King, J. Crew Group, Continental Airlines and Metro Goldwyn Mayer.

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