$15.1 Billion Buyout Bid Hikes Casino Stocks

Two private equity firms offered a $15.1 billion takeover price to Harrah's Entertainment Inc, the Las Vegas based company, owning and operating casinos, hotels, and five golf courses under several brands.

It received the fourth largest buyout offer ever by Apollo Management and Texas Pacific Group.

The offer is 22% higher than Harrah’s closing price on Friday and the board is reviewing the $81-a-share offer. The news made the shares take a huge leap, up $9.25, or 13.9 percent, to $75.68, the highest in eight years. Including debt, the transaction would be valued at $25.9 billion.

Analysts said, that the shares offered are cheap as compared to the money Harrah holds, and this makes it attractive to the buyout firms, who look for long term cash generating investments.

"Right now, Harrah's is certainly one of the better-run companies," said Rod Petrik, an analyst with Stifel Nicolaus & Co. "They manage their customer loyalty program better than anybody. It's a matter of perhaps what the private-equity firms could help the company do to grow internationally."

Spokespeople of the two equity firms could not be reached for comment. Harrah’s board said that the company was analyzing the offer and till things get sure, they can’t make any recommendations to the shareholders.

Eugene Sit of Sit Investment Associates, which owns 224,850 shares of Harrah's, said that the company is well managed and is likely to receive competing bids from other potential buyers also.

In the past decade, the revenue US mints from gambling, has increased manifold, rising to $30.5 billion last year from $17 billion in 1995. Much of Harrah’s profit is derived from casinos and hotels in Las Vegas and Atlantic City. It also operates casinos in Joliet and northwest Indiana.

After losing a bid to open casinos in Singapore, the entertainment company is now aiming the overseas market.

Harrah's has increased profit in each of the earlier 10 quarters except one, when it closed four casinos after Hurricanes Katrina and Rita last year.

In August 2005, Harrah's ‘New Orleans’, ‘Grand Casino Biloxi’, and ‘Grand Casino Gulfport’ were closed because of Hurricane Katrina. In September 2005, Harrah's ‘Pride of Lake Charles’ was severely damaged by Hurricane Rita.

Harrah’s also announced on Monday that they have stuck a deal with a unit of Boyd Gaming Corporation. According to the deal, Harrah’s will exchange their 24 acre land they control on the Las Vegas Strip for ‘Boyd's Barbary Coast’ Hotel and Casino. It was the last main piece of property standing in the way of a gigantic renovation project.

Founded in 1937, Harrah’s has been fast growing ever since and is one of the most well handled companies. In February 1980, Holiday Inn acquired ‘Harrah's Las Vegas’ and purchased the ‘Rio All Suite’ Hotel and Casino in 1999 for $888 million.

In March 2004, Harrah's purchased Binion's Horseshoe and sold it to MTR Gaming Group retaining the rights to the Horsehoe brand and the World Series of Poker.

In June 2005, Harrah’s took over Caesars Entertainment and became the largest gambling company with over 4 million square feet of casinos, almost 100,000 employees and over 40 casinos.

In November 2005, Harrah’s announced its intention to sell the ‘Flamingo Laughlin’ to AREP Boardwalk Properties LLC. The $170 million sale closed on May 2006.