Harrah's Entertainment Inc. agreed to purchase gambling riverboat operator Horseshoe Gaming Holding Corp. for $916 million in cash and $543 million in assumed debt, a $1.46 billion deal that is the largest acquisition yet for the Las Vegas gambling giant and one that is expected to create the nation's largest casino company in terms of annual cash flow.
Horseshoe Gaming owns three casinos in Hammond, Ind., Bossier City, La. and Tunica, Miss. and is controlled by Jack Binion, the brother of Binion's Horseshoe owner Becky Behnen. The acquisition doesn't include the Binion's Horshoe casino property located in downtown Las Vegas.
Harrah's executives also said they are in negotiations with Behnen to secure rights to the Horseshoe name in Nevada, which would allow Harrah's to rename existing casinos or brand new properties with the Horseshoe moniker.
Harrah's would be interested in purchasing the downtown casino from Behnen if buying that property would help with the negotiations to take over the Horseshoe name in Nevada, Harrah's Chief Executive Officer Gary Loveman said during a conference call today.
The company also is exploring the idea of adopting the Horseshoe name to replace the Harrah's brand at a few of its casinos and may introduce the Horseshoe name outside of the country, where it is pursuing a casino development deal in the United Kingdom.
The Horseshoe brand "has tremendous brand equity" and the potential to outperform any other brand in any given market, Loveman said. Horseshoe Gaming emphasizes gambling over non-gaming activities and is known for high-limit table games and generous complementaries -- a policy that won't change under Harrah's, he said.
"There's only a certain number of (gaming) licenses involved in this business," Loveman said. "In a limited license environment (brands) are very important."
Binion's father, Benny Binion, founded Binion's Horseshoe and involved his entire family in the operation. Binion ran the downtown casino until 1998, when he sold most of his stake to Behnen. Binion still has a Nevada gaming license but will not say whether he intends to retire from the gaming business, re-enter the Nevada market or invest elsewhere.
Horseshoe Gaming moved its headquarters from Illinois to Las Vegas a few months ago. Binion had sold off his remaining casino in that state and said he wanted to be closer to his permanent home in Las Vegas.
Behnen and other representatives of Binion's Horseshoe could not be reached for comment.
Binion is a "sole proprietor who worked his whole life," said Ray Cheesman, an analyst with Jefferies & Co. "I think he's going to take his hard-earned life savings ... and live the good life" in retirement.
Binion said today that he has pledged his assistance to Harrah's in the transition for an indeterminate amount of time, but will otherwise be looking forward to "doing a lot of skiing."
"(Binion's) immediate focus is going to be on making sure there's a smooth transition," Horseshoe Gaming Senior Vice President of Marketing Chris Corrado said. "The news is so fresh -- I don't think (Binion) has begun to think" about whether to retire, he said.
Binion's involvement in the transition is important, Harrah's said, because his casinos are carefully crafted around his personality, image and the motto, "A place for gamblers to indulge without apology."
Harrah's plans to finance the purchase through existing credit lines and by issuing debt. Regarding the assumed debt of $533 million, Harrah's said it expects to refinance those bonds at a lower rate. They are callable in early 2004.
Customers won't notice the shift under Harrah's, Loveman said. As for employees, Harrah's hasn't made a commitment to retain Horseshoe's roughly 7,500 workers, though the company "will need them" to keep things running smoothly, he said. As with any acquisition, the company expects to eliminate some overlap in management, he added.
Harrah's also said today it expects to sell its casino in Shreveport, La., which is near Bossier City, to avoid "overexposure" in that market. The company will keep its Bossier City racetrack, Louisiana Downs, because it caters to a different type of customer than either the Horseshoe or Harrah's casinos. The company has not yet identified a buyer for the Shreveport casino.
Harrah's has completed four major acquisitions in about as many years, including the Showboat casino company in 1998, the Rio resort in Las Vegas in 1999, Players International in 2000 and Harveys Casino Resorts in 2001. The Horseshoe purchase compares to other billion-plus deals in recent years, including Park Place Entertainment Corp.'s $3 billion purchase of Caesars World in 1999 and MGM Grand Inc.'s $6.4 billion purchase of Mirage Resorts Inc. in 2000.
The purchase price is somewhat higher than the $1.39 billion bid that Ameristar Casinos had reportedly offered for Horseshoe in recent weeks. The purchase is somewhat defensive because Ameristar, already an aggressive competitor, would have been a "formidable" presence with the Horseshoe brand, Loveman said.
The acquisition is expected to save about $35 million in costs for Harrah's as well as boost Harrah's earnings and cash flow, the company said.
Harrah's also expects to incorporate Horseshoe gamblers into Harrah's Total Rewards player loyalty club program, which will extend complementary hotel rooms and other perks to Horseshoe customers at Harrah's properties. Harrah's customers also would be able to obtain perks at Horseshoe properties, executives said.
The process of adding gamblers to the Total Rewards program is expected to take six months from the completion of the acquisition.
Harrah's, considered the nation's most geographically diverse casino company, already operates casinos in Horseshoe Gaming's markets.
This morning,the Standard & Poor's rating agency affirmed the company's long-term corporate credit rating and said the company's outlook is stable.
Moody's Investors Service also affirmed Harrah's investment grade rating and put the company's rating on review for a possible upgrade.
The acquisition will improve the company's business position by "combining its already well-diversified asset base with a portfolio of gaming properties that each possesses clear market-leading positions," S&P analyst Michael Scerbo said.
Reactions to the acquisition announcement were mixed.
"We think the company is paying up for these properties and doesn't gain access to any new distribution points, which has been the justification for past acquisitions," Deutsche Bank Securities analyst Marc Falcone wrote in a research note to investors today. Falcone downgraded Harrah's to "hold" from "buy" on the news.
Buckingham Research Group analyst Todd Jordan said Harrah's is paying "a fair price" for Horseshoe that will pay off with earnings and cash flow growth.
"The major issue for Harrah's will be to maintain the strong relationships existing between the current Horseshoe owner Jack Binion and his customers," Jordan wrote.
Harrah's shares rose 2.4 percent, or 97 cents, in early trading today to $40.83.
Join the Discussion:
Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.
Full comments policy