The largest gaming company in the world, Harrah’s entertainment is making news again. It is trying to tap public markets with an initial public offering and is hoping to raise a whopping $575 million. It plans to use this money for its planned projects in Las Vegas and Ohio. It owns and operates over 50 casinos, hotels, and 7 golf courses under different brand names like Harrah’s, Bally’s, Caesars, Horseshoe, and Rio. Harrah’s taken private in January 2008 by Hamlet Holdings (Apollo Management and Texas Pacific Group), is eyeing on new opportunities in US gambling market.
The company has filed documents with the US Securities and Exchange Commission of its plan of offering public shares. It has listed several pending projects that it hopes to complete using the raised money. Nevertheless, it has not disclosed the amount of stock to be sold or the expected pricing of the stock.
Harrah’s Entertainment had dropped its dream projects due to financial crunch. However, the mega projects are kicking off again with the IPO plan. The company in its regulatory filing stated that it plans to finish its 660-room Octavius Tower at Caesars Las Vegas, develop the LINQ retail and entertainment area next to the Flamingo on the Las Vegas Strip, and invest in the development of two Ohio casinos jointly with Rock Gaming. Without disclosing the details, it also hinted at other possibilities of using the money raised for another potential casino management and partial ownership opportunity.
It can be recalled here that Apollo Management and TPG acquired Harrah’s when the market was at its peak. With this, the company assumed an enormous $20 billion debt. Recession gripped America just as the deal was done. The gambling industry was hit badly and Harrah’s is struggling ever since to make payments on that debt. Harrah’s cut $500 million in costs and also allowed hedge fund Paulson &Co. to take on $710 million in Harrah’s debt for about $470 million. It is believed to have extended most debt maturities until 2015. Even with many such efforts, Harrah’s remains the most indebted of all the major players of the gaming industry.
Harrah’s, having played a major role that pushed US Congress to allow Internet gambling is trying to improve its financials with the IPO plan. But even after the IPO, Harrah’s will still owe $20 billion as debt. Its lack of presence in Macau, the global hot spot for casinos and resorts, and the ever-increasing competition in the industry poses problems. The investors will also watch its ability to leverage its World Series of Poker on-line very carefully.
Harrah’s SEC filing is an indication that casino industry is getting back on its track. Markets are showing signs of recovery with Fitch ratings giving a positive outlook for MGM. Las Vegas Sands Corporation and Wynn Resorts Limited beat EPS expectations in the June quarter. However, Boyd Gaming Corporation and a few other companies reported EPS weaker than expected. All these suggest the investors to be cautious with the IPO.
Harrah’s probably hopes to recoup more by staying in the industry. As the slump in Las Vegas eases and casino securities rally, Harrah’s IPO is a bold move. The success of the IPO depends on the stability of the market and the ability of Harrah’s entertainment to woo the wary investors and persuade them that their IPO is worth the gamble.