U.S. News

Harrah's Tentatively Agrees to Buyout for $16.7 Billion: Faber


Harrah's Entertainment has tentatively agreed to be acquired for $16.7 billion by two private equity firms, people familiar with the situation have told CNBC's David Faber.

Harrrah's board agreed in principle to a $90 per share cash offer from Apollo Management and Texas Pacific Group over the weekend. However, certain conditions of the deal are still being negotiated and an announcement is likely Tuesday, these people said.

Harrah's, the world's largest casino company, was also courted by smaller rival Penn National Gaming,which did not match the financial firepower of the private equity companies in its offer.

As part of the deal, investors will still collect the Harrah's quarterly dividend of $0.40 per share until the deal closes. Sources said it could be a year before the transaction is completed. Apollo will start paying interest after 14 months if the deal is not closed.

Harrah's management would continue to run the company as part of the deal with private equity buyers.

Harrah's board had also considered a third option of a recapitalization plan if neither of the bids were accepted. The recapitalization likely would have included a special dividend for shareholders.

The casino sector has been rife with deals this year as executives move to run their businesses away from the pressure of public markets amid strong demand from private equity firms that are branching out to new areas with hundreds of billions of dollars to spend. 

The deal would be one of the top ten largest private equity buyouts this year. Others have included the $21 billion buyout of HCA and the $20 billion buyout of Equity Office Properties Trust.

The deal would end a takeover saga set in motion more than two months ago, when Las Vegas-based Harrah's said Apollo and TPG had offered to buy it. Then, smaller casino operator Penn National began considering a bid.

That gap between the price offered and the level of Harrah's shares widened at various points during the past two months as investor confidence that a deal would be reached has vacillated -- partly due to concerns the casino licensing requirements could mean a gap of at least a year before the deal can be completed, experts have said.

More uncertainty crept into the market last week as Harrah's began considering the possibility that instead of a sale, it would undergo a recapitalization, or financial restructuring, according to a source. Typically, that involves issuing new debt and then paying shareholders a special dividend.