Two private equity firms, Apollo Management and Texas Pacific Group, offered $81 per share to purchase Harrah's Entertainment (HET), which was about a 22% premium over the stock price at the time of the offer. With around $10 billion in debt also to be assumed, the total deal would come to around $25 billion for the company.
News of the deal also helped some of their competitors as their stock prices surged; including MGM Mirage (MGM), Station Casinos (STN), and Ameristar Casinos (ASCA).
Motley Fool contributor Jeff Hwang believes that even at that price the company is undervalued. One reason it has lagged in price behind some of its competitors has been its inability, at this time, to tap into the Asian marketplace.
"Harrah's is a company that has tremendous long-term potential, and it has only just begun realizing the value of the assets acquired in last year's merger with Caesars Entertainment. Investors are still anxiously awaiting announcements regarding master plans for the Las Vegas Strip and Atlantic City -- two markets which now account for 60% of the company's cash flow. In fact, this morning Harrah's separately announced an agreement to swap 24 acres of land adjacent to Boyd Gaming's (BYD) Stardust property on the Strip in exchange for Boyd's Barbary Coast -- the key piece of land on the Strip that should allow Harrah's to move forward with its plans."
The bottom line in all of this is that the buyout offer is nothing more than an offer for its fair value; not an offer that would initiate a serious response. The long-term shareholders in the company would probably be the big losers as the potential for Harrah's, over the long-term, is tremendous.
It'll be interesting to see if anyone applies pressure for the deal to go through. Do you want this to happen?
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