In private hands
In private hands
Harrah's Entertainment accepts private equity buyout worth $27.8 billion
Harrah's Entertainment has agreed to a buyout by private equity firms Apollo Management and Texas Pacific Group worth $27.8 billion, the company announced in late-December.
In a statement released by Harrah's, the company said Apollo and Texas Pacific agreed to pay $90 per share for the approximately 190 million outstanding shares of Harrah's-worth about $17.1 billion. Additionally, the two private firms would assume Harrah's $10.7 billion in debt. It's the fifth-largest leveraged buyout this year, and the sixth largest of all time. It is the largest-ever such deal in the gaming industry's history.
"We are delighted to be joining with the excellent management team at Harrah's and our private equity partners to continue to build on the company's strong foundation," said David Bonderman, founding partner of Texas Pacific Group. "Taking a long-term perspective, we believe we will be able to help Harrah's deliver on its growth strategy."
Leon Black, founding partner of Apollo, added that, "Harrah's has an excellent brand name, strong cash flows, an impressive portfolio of properties, a very talented management team and highly skilled employees. Together with our private equity partners, we look forward to building on Harrah's successful track record of operational success and helping the company to achieve its strategic goals."
The Apollo-Texas Pacific bid surpassed a bid of $88.50 per share from Penn National Gaming. Morgan Joseph gaming analyst Adam Steinberg, in a research note, lauded Harrah's acceptance of the higher, private equity bid as good news for Penn National.
"We view this as positive for Penn National as we were not in favor of the company purchasing Harrah's given the steep price tag and the number of shares that would have to be issued by Penn to consummate the transaction," Steinberg said, noting his firm had raised its rating on PENN shares from "hold" to "buy" status.
Harrah's directors had been mulling the buyout possibilities for over a month. A special committee to review the bids was formed and in early December, the 11 board members of the company (except for company Chairman and Chief Executive Officer Gary Loveman) met for two days in New York to discuss both bids, as well as a plan to recapitalize the company.
"After careful consideration of the full range of strategic alternatives, the special committee and the full board concluded this transaction is in the best interest of Harrah's stockholders," said Robert Miller, co-chairman of the special committee. "Apollo and TPG are both leading private equity firms with proven track records and strong reputations."
Yet some analysts have said they were puzzled by the private equity potential. In a research note, Jake Balzer, an analyst with Guzman & Co. had questions about the joint offer by the private equity firms, as well as Penn's competing offer and a report that Harrah's had also been considering a recapitalization, which would leverage up the company, allowing it to make a large special cash dividend or share buyback.
"While we view Harrah's operations favorably, the impetus behind recent offers remains unclear to us. A highly leveraged Harrah's appears to have limited growth possibilities, while a break-up would appear to eliminate significant synergies," Balzer wrote. "In addition, this is not a company that we believe has significant opportunities to improve operations via management changes. Further, we don't see that HET is a bargain at $90 per share."
Balzer added that, "private equity firms typically attempt to acquire companies with solid cash flow generation or whose underperforming operations have potential for such, but few reinvestment opportunities," Balzer said. "In our view, Harrah's does have very attractive investment opportunities. Therefore, leveraging the company and using cash flow to service debt instead of growth makes little sense to us. We also see the current management team as very strong."
Analysts have also noted that it could take well over a year to complete the licensing requirements for private equity groups not already licensed in the gaming industry.
But Harrah's president, chairman and chief executive officer Gary Loveman said the deal with Apollo and Texas Pacific was a natural fit.
"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. This will be a change in ownership, not a change in direction," Loveman said. "Harrah's management team and its 85,000 talented employees look forward to working with Apollo and TPG as the company moves into the next phase of its growth and development."
Harrah's operates 40 casino properties in 13 states, and it has several international ventures as well. One possible benefit of a buyout from private equity companies would be that the company could be more flexible in new developments and expansion projects-not having to be subjected to shareholder scrutiny for quick returns on investments or shareholder approval of certain projects and developments. Since the buyout speculation began, however, several of Harrah's current projects have been put on hold. It is unclear at this point how those projects-and management structure-might change now that the buyout is approved.
-Andy Holtmann
Harrah's Entertainment accepts private equity buyout worth $27.8 billion
Harrah's Entertainment has agreed to a buyout by private equity firms Apollo Management and Texas Pacific Group worth $27.8 billion, the company announced in late-December.
In a statement released by Harrah's, the company said Apollo and Texas Pacific agreed to pay $90 per share for the approximately 190 million outstanding shares of Harrah's-worth about $17.1 billion. Additionally, the two private firms would assume Harrah's $10.7 billion in debt. It's the fifth-largest leveraged buyout this year, and the sixth largest of all time. It is the largest-ever such deal in the gaming industry's history.
"We are delighted to be joining with the excellent management team at Harrah's and our private equity partners to continue to build on the company's strong foundation," said David Bonderman, founding partner of Texas Pacific Group. "Taking a long-term perspective, we believe we will be able to help Harrah's deliver on its growth strategy."
Leon Black, founding partner of Apollo, added that, "Harrah's has an excellent brand name, strong cash flows, an impressive portfolio of properties, a very talented management team and highly skilled employees. Together with our private equity partners, we look forward to building on Harrah's successful track record of operational success and helping the company to achieve its strategic goals."
The Apollo-Texas Pacific bid surpassed a bid of $88.50 per share from Penn National Gaming. Morgan Joseph gaming analyst Adam Steinberg, in a research note, lauded Harrah's acceptance of the higher, private equity bid as good news for Penn National.
"We view this as positive for Penn National as we were not in favor of the company purchasing Harrah's given the steep price tag and the number of shares that would have to be issued by Penn to consummate the transaction," Steinberg said, noting his firm had raised its rating on PENN shares from "hold" to "buy" status.
Harrah's directors had been mulling the buyout possibilities for over a month. A special committee to review the bids was formed and in early December, the 11 board members of the company (except for company Chairman and Chief Executive Officer Gary Loveman) met for two days in New York to discuss both bids, as well as a plan to recapitalize the company.
"After careful consideration of the full range of strategic alternatives, the special committee and the full board concluded this transaction is in the best interest of Harrah's stockholders," said Robert Miller, co-chairman of the special committee. "Apollo and TPG are both leading private equity firms with proven track records and strong reputations."
Yet some analysts have said they were puzzled by the private equity potential. In a research note, Jake Balzer, an analyst with Guzman & Co. had questions about the joint offer by the private equity firms, as well as Penn's competing offer and a report that Harrah's had also been considering a recapitalization, which would leverage up the company, allowing it to make a large special cash dividend or share buyback.
"While we view Harrah's operations favorably, the impetus behind recent offers remains unclear to us. A highly leveraged Harrah's appears to have limited growth possibilities, while a break-up would appear to eliminate significant synergies," Balzer wrote. "In addition, this is not a company that we believe has significant opportunities to improve operations via management changes. Further, we don't see that HET is a bargain at $90 per share."
Balzer added that, "private equity firms typically attempt to acquire companies with solid cash flow generation or whose underperforming operations have potential for such, but few reinvestment opportunities," Balzer said. "In our view, Harrah's does have very attractive investment opportunities. Therefore, leveraging the company and using cash flow to service debt instead of growth makes little sense to us. We also see the current management team as very strong."
Analysts have also noted that it could take well over a year to complete the licensing requirements for private equity groups not already licensed in the gaming industry.
But Harrah's president, chairman and chief executive officer Gary Loveman said the deal with Apollo and Texas Pacific was a natural fit.
"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. This will be a change in ownership, not a change in direction," Loveman said. "Harrah's management team and its 85,000 talented employees look forward to working with Apollo and TPG as the company moves into the next phase of its growth and development."
Harrah's operates 40 casino properties in 13 states, and it has several international ventures as well. One possible benefit of a buyout from private equity companies would be that the company could be more flexible in new developments and expansion projects-not having to be subjected to shareholder scrutiny for quick returns on investments or shareholder approval of certain projects and developments. Since the buyout speculation began, however, several of Harrah's current projects have been put on hold. It is unclear at this point how those projects-and management structure-might change now that the buyout is approved.
-Andy Holtmann
