In a stunning piece of news, casino giant Harrah's Entertainment
Let me start by saying that a potential deal makes little sense for either Harrah's shareholders or the company in general. It merely confirms my belief that Harrah's shares were undervalued.
Harrah's is a company that has tremendous long-term potential, and it has only just begun realizing the value of the assets acquired in last year's merger with Caesars Entertainment. Investors are still anxiously awaiting announcements regarding master plans for the Las Vegas Strip and Atlantic City -- two markets which now account for 60% of the company's cash flow. In fact, this morning Harrah's separately announced an agreement to swap 24 acres of land adjacent to Boyd Gaming's
Selling out now for what is probably little more than fair value would deny investors the benefits of Harrah's bright future. Moreover, the company itself has strong direction; merely folding the company's assets into those of a private equity concern for the casinos' cash flow might slow down the company's development. An increased debt load might also be a burden; where Harrah's was previously the only casino operator with investment-grade debt, S&P today downgraded Harrah's debt to junk status, based on the buyout proposal. In addition, licensing could be a potential concern. Privately held Columbia Sussex recently bailed on the acquisition of what is now Pinnacle Entertainment's
Simply put, at $81 per share, I don't think the buyout offer is compelling enough to warrant selling out.
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