On Friday, Harrah's Entertainment (NYSE:HET) said it had received a request from the Federal Trade Commission for additional information regarding its impending $1.45 billion acquisition of Horseshoe Gaming. Anti-competitive concerns will push back completion of the deal -- which includes Horseshoe's properties in the Chicagoland, Tunica, and Shreveport markets -- and may force Harrah's to dispose of more than one property at less-than-optimal prices.
At the heart of the concern is the Shreveport, La., market. Currently, there are five casinos and a racino (a racetrack with slot machines) there. Of those, Harrah's already owns one of the casinos and the racetrack. When the Horseshoe acquisition was announced, Harrah's said that it would sell its own Harrah's-branded casino in that market to avoid both overexposure and anti-trust concerns.
However, Harrah's has yet to finalize a sale, though several buyers would be interested at the right price. For one, Ameristar Casinos (NASDAQ:ASCA) -- which Harrah's outbid for Horseshoe -- is interested in the Shreveport market. But Harrah's won't sell its property to Ameristar for the same reason it didn't want Ameristar to have Horseshoe's properties in the first place: It doesn't want to have to compete with it.
The Chicagoland, Ill./Ind. market may also be an issue. Besides the Horseshoe property, Harrah's already operates two properties in the nine-property market. Apparently, the company is also interested in Illinois' 10th gaming license, which would give it a fourth property in that market. Though Harrah's currently has no plans to sell either of its properties, that could change upon the FTC's review, but that outcome doesn't appear likely.
On the other hand, Tunica, Miss., clearly isn't a concern. Park Place Entertainment (NYSE:PPE) itself owns three properties in that market, which allows it to compete for a wider range of patrons. Besides, Harrah's isn't a formidable presence in that market as it is. In fact, a number of Harrah's guests at that property are cross-market patrons who stay at the hotel but play in other casinos.
Most likely, the FTC request will merely push back completion of the deal, rather than block it outright. But in addition to already paying a high price at 7.2 times 2004 EBITDA for Horseshoe, having to sell the Shreveport property at a discount will increase Harrah's cost of making the acquisition. And any gripes the FTC might have about Chicagoland would only make it worse.
Harrah's may be keeping Horseshoe out of Ameristar's hands, but it is surely paying up for it, too.
Jeff Hwang owns shares of Ameristar Casinos, and can be reached at [email protected].
