Players International Jilts Jackpot for Harrah's (Fool Plate Special) August 16, 1999

An Investment Opinion

Players International Jilts Jackpot for Harrah's

By Warren Gump (TMF Gump)
August 16, 1999

Casino company Players International (Nasdaq: PLAY) announced today that it was standing up Jackpot Enterprises (NYSE: J) at the altar so it could accept a merger proposal from Harrah's Entertainment (NYSE: HET). Harrah's has offered Player's shareholders $8.50 per share in cash -- a tad higher than Jackpot's $8.25 a share proposal -- made up of $6.75 cash and $1.50 of Jackpot stock. Although a binding agreement has not yet been signed (that is expected by Thursday, August 19), the Players board has approved the offer. Under terms of the canceled merger agreement, Players will be required to pay Jackpot a $13.5 million termination fee.

While it is possible that Jackpot could try to up the ante for Players, Harrah's would likely win any bidding war because it can reap much more synergy from such a transaction. The most obvious place for streamlining is in Maryland Heights, MO, where Players operates two dockside riverboat casinos (Player's and Riverport) adjacent to a Harrah's facility. The two companies also jointly operate a hotel and entertainment complex serving these properties. Once the merger is completed, Harrah's plans to operate all of these facilities under its own brand name.

More important than simply streamlining operations, though, Harrah's has developed something that has hitherto been fairly elusive in the casino business... a nationwide brand loyalty program called Total Gold that helps drive traffic at all its properties. The success of this program is partly driven by the fact that Harrah's has its tentacles in almost all of the domestic gaming markets big and small, including Las Vegas, Atlantic City, the Gulf Coast, and most riverboat states.

The program works in such a way that gamblers can earn points on an excursion to a local facility such as Joliet or East Chicago and then use them for a major trip to a venue like Rio or Harrah's in Las Vegas. The quarter after the former Showboat property in East Chicago was rebranded a Harrah's, the casino experienced a 22% jump in revenues and a 75% EBITDA surge. While such substantial improvement can't be expected at all properties, it does give an indication about the benefits of a nationwide brand and a successful loyalty program.

While all of the other gaming companies have taken to building new multi-hundred-million to billion-dollar-plus "destination" properties in Las Vegas, Harrah's has focused on building its brand and distribution. Its actions, which include the rollout of Total Gold and the acquisitions of Showboat and Rio Hotels & Resorts, don't get nearly as much attention as those of competitors. At the same time, Harrah's seems to be one of the more successful operators in terms of making its bottom line grow. Do you think profitable growth or fleeting media buzz is more important to long-term shareholders?