The biggest news today might be the lack of news about the Harrah’s Entertainment LBO. From the LVRJ:
A meeting that no one will confirm is taking place could determine the direction of the gaming industry’s largest casino operator.
Almost 10 weeks after two private equity groups bid more than $15 billion to take Harrah’s Entertainment private, the company’s board of directors is expected to meet today and evaluate all potential offers for the Las Vegas-based company that operates almost 40 casinos in 13 states.
The Wall Street Journal and other financial media outlets reported that Harrah’s board wanted all offers submitted by Tuesday.
Rival casino operator Penn National Gaming supposedly entered the fray for Harrah’s last month to try to trump the bid.
The Wall Street Journal and Reuters reported Tuesday that Apollo Management of New York and Texas Pacific Group of Forth Worth, Texas, were raising the stakes. The two groups bid $81 a share for Las Vegas-based Harrah’s on Oct. 2 and reportedly upped the price to $83.50 a share about 10 days later. The groups are now expected to bid $87 a share for the company, which would value Harrah’s at close to $16 billion.
Management from Harrah’s, Penn National and the two private equity groups won’t discuss the matter on the record.
…
Adam Steinberg, gaming analyst for New York-based Morgan Joseph Co., thinks Penn National may be bidding to acquire several pieces of Harrah’s, possibly the Rio in Las Vegas and one of the company’s four Atlantic City casinos.Penn National operates 16 casinos and race tracks in 12 states and Canada. Penn National’s market capitalization is $3.2 billion; Harrah’s market cap is $14.6 billion.
Steinberg said Penn National Chairman Peter Carlino has been quoted in recent interviews as saying that he would like to bring the company to Las Vegas and Atlantic City, two markets where Penn National does not operate a casino.
“There are too many overlaps with Harrah’s in different markets that makes it difficult to complete an overall purchase of the company,” said Steinberg, who closely follows Penn National. “There would be too many parts that would have to be sold off. It seems they’re looking at trying to get their hands on something.”
reviewjournal.com — Business – MERGERS AND ACQUISITIONS: Harrah’s quiet about bids
Here’s my view, from the outside looking in: Harrah’s casinos’ value comes partially from their interlinked player loyalty program. The Rio is worth more hooked into that system right now than as a stand-alone.
Picking up a property like the Rio or Bally’s/Paris (the only things I imagine Harrah’s would even THINK about selling in Las Vegas) would make a lot of sense for company that already has a national network of casinos but no presence in Las Vegas–Penn, Ameristar, and Isle (in that order) fit the bill. If Donald Trump and Steve Wynn hadn’t buried the hatchet, and Trump was interested in getting into the LV market (and had the financing), this would have been a perfect opportunity for him–I can almost see the Rio with a giant red TRUMP sign splashed over the Voodoo Lounge (more importantly, I’m sure the Donald could see it).
I saw some speculation last week in Motley Fool about breaking up Harrah’s–even the core properties in Las Vegas–to turn a quick buck. Now, I know that they write brilliant book reviews, but the idea dismembering Harrah’s doesn’t make much sense in the long run.
Sure, if the world was going to end in three months, Harrah’s (or whoever ends up owning it) would benefit by selling off big chunks, or even all, of its Center Strip real estate at $35 million/acre or more. The company’s managers could throw a huge party with the proceeds–if they could find any takers.
But since HET has been working for years to carefully acquire land, why sell it now? It would make more sense to hold onto it for 10-15 years, until City Center (and whatever MGM Mirage has in the pipeline after that–remember, they’ve got plenty more un- and under-developed land (goodbye, Circus Circus RV park) and Echelon Place are built out and supply tightens. Meanwhile, the company could concentrate on its redevelopment plans in Biloxi and Atlantic City and its international expansions. By then, you might not be able to get that land for $50 million/acre.
Would shedding the Rio make sense? Maybe–though you’d have to find a new home for the World Series of Poker, and any HET upper management who are Prince fans would be out of luck. But Rio also has a lot of real estate around it. If you look at an aerial map, you can see that, if they could tunnel under the railroad tracks and I-15, Harrah’s owns an almost-contiguous landmass that starts on Koval Ave, crosses the Strip and Caesars Palace, and continues out to Valley View and Twain. Sure, much of it is surface parking now, but I think that 10 years from now, even this area would be a prime spot for an “urban village” development with high-rise condos, retail, and possibly office buildings.
Would it make sense for the company to sell off properties in other jurisdictions? Dumping Bally’s Atlantic City would rid the company of most of its center-Boardwalk real estate, and would probably diminish the utlity of all that high-end retail on The Pier at Caesars. The Showboat would make more sense.
In short, there’s a quick buck to be made in selling off nearly any part of Harrah’s, but little long-term rationale for most of it. I’m sure the goose makes a pretty tasty entree, after all, but its the golden eggs that you really want.