TPG, Apollo to buy Harrah’s for $17bn

After months of negotiation, the board of the gaming company has agreed to a sweetened offer from the two private equity firms.

Harrah’s Entertainment, the world’s largest casino operator, has agreed to be acquired by Texas Pacific Group and Apollo Management for $17.1 billion (€13.2 billion), one of the largest private equity transactions ever. With the assumption of approximately $10.7 billion in debt, the total transaction price is around $27.8 billion.

The deal comes after months of negotiations and competing bids following the two private equity firm’s initial offer of $81 a share in October. Under the current bid, Harrah’s shareholders will receive $90 per share, a premium of more than 36 percent over the company’s stock price before the initial bid was disclosed.
 
Apollo and TPG managed to overcome a rival consortium including Penn National Gaming, a racetrack and casino operator, and hedge fund DE Shaw, one of the largest owners of Harrah’s stock and a vocal opponent of the initial $81-per-share offer. Penn National and DE Shaw reportedly made a bid of $87 per share.

“In Apollo and TPG, we will have owners who share our vision for Harrah’s, are fully supportive of our current strategy and are committed to helping us execute on it,” Gary Loveman, Harrah’s chairman, chief executive officer and president, said in a statement. “This will be a change in ownership, not a change in direction.”

Following the original offer, the board of Harrah’s formed a special committee to evaluate strategic alternatives. Under the terms of the current agreement, Harrah’s may solicit other proposals for the next 25 days. The deal is expected to take approximately one year to close.

Apollo and Texas Pacific are among several private equity firms that have been active in the US gaming sector, which has rapidly expanded in recent years due to a relaxation of regulatory laws. Similar trends are taking shape internationally, with Singapore issuing gaming licenses, the UK easing restrictions in its once tightly controlled market and Macau, located off the coast of southeast China near Hong Kong, growing into an Asian gambling hotspot. Harrah’s recently lost a bid for one of the gaming licenses in Singapore.

In March, Colony Capital joined with Goldman SachsWhitehall Funds, Providence Equity Partners and The Related Companies to acquire Kerzner International for $3.6 billion, giving the consortium control of the Mohegan Sun casino in Connecticut and the Carribean’s largest gaming operation at the Atlantis Resort on the Bahamas’ Paradise Island. In September, Oaktree Capital Management won clearance from Nevada regulators for its acquisition of a one-third stake in Cannery Resorts, which operates two casinos in Las Vegas casinos. And earlier this month, Colony made a $5-billion offer for Station Casinos, which owns 12 Las Vegas-area casinos.

Bloomberg estimates that there have been more than $26 billion in proposed gaming deals in 2006, more interest than the previous five years combined.