Post of the Day
June 30, 1998

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Subject: Interesting Dynamics!!
Author: Brigam

It seems that we can divide the leading companies in this industry into 2 categories:

Hilton & Harrah's: Have been saying for many months that they intend to "lead the consolidation" of the gaming industry, and their actions bear this out. Hilton re-affirmed that they will continue to do this even after their Grand acquisition, and Harrah's re-affirmed that they will continue to do this even after their Showboat acquisition (though Bigdip says that Harrah's will wait to pay down some of their debt and to resolve a few of their other issues, and I acknowledge that Bigdip may be right; on the other hand, the forthright assertion by Goldberg that Hilton will do more gaming acquisitions must put some pressure on Harrah's, esp. since Harrah's sees national distribution as absolutely key to their strategy).

Mirage & MGM Grand: Both state that they prefer to build rather than to buy and (I'm using Harrah's terminology here) to take more of a "supply-side" than a "demand-side" approach to the industry. MGM's recent share buy-back is consistent with their statements in this regard (although, with their share price so low 2 weeks ago, they were not in a good position to use their shares as a "currency" for acquisitions in any event). Mirage has its hands full with its new huge projects and with debt, and in any event their shares are also probably too low to use as an acquisition currency.

Meanwhile, Hyatt appears to continue to be serious about the Gaming industry, having taken on projects in Niagara Falls, Ontario and in the outskirts of Las Vegas -- as well as having successful gaming operations elsewhere in the U.S. and overseas. I don't know what their financial strength is right now, but as a private company the market's bearishness about the gaming industry could work in their favor in the event that they would like to expand by doing an acquisition. (I feel that a Hyatt-Aztar marriage would work very well.)

And meanwhile there are other potential players out there, such as Carl Icahn, Rank Group and Ladbroke's. I know, Ladbroke's owns the Hilton name outside the U.S. and Bollenbach sits on the Ladbroke board, so I don't know what their own freedom of maneuver in the U.S. gaming sector is. I believe that Ladbroke's owns a small casino in Colorado, and I think they also have a card room in California. Ladbroke's is a leading player in the UK gaming business.

Whether we investors make any money remains to be seen! But at least it's interesting!

B.


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