As I've said before, I don't think Harrah's Entertainment
Late last month, casino operator Harrah's and merger partner Caesars Entertainment
Harrah's and Caesars look to be getting premium value at 8.5 times trailing earnings before interest, taxes, depreciation, and amortization (EBITDA), and they aren't really giving up much either.
Harrah's East Chicago is probably the most valuable property in the deal, though still a second-best player in the Chicagoland market. Atlantic City Hilton is a non-core asset among Harrah's and Caesars' collection of Atlantic City casinos, Harrah's Tunica is a non-competitor on the wrong end of its market, and Bally's Tunica is a mess with a decent location.
When the sale closes, Harrah's will use its $476 million in after-tax proceeds to pay down debt, and Caesars will use its $480 million in proceeds to reduce its debt to near $3.7 billion. Caesars also expects to book a gain from the sale.
The deal is part of Harrah's and Caesars' effort to sell off assets to both alleviate antitrust concerns and pay down debt. Back in July, the two casino operators agreed to merge in a $9.4 billion deal to create the world's largest casino operator. The combined company would have more than 50 casinos across the country, but with considerable overlap in certain key markets (see No Quick Win in Casino Merger).
That announcement came in response to the $7.9-billion merger agreement between rival Las Vegas Strip heavyweights MGM Mirage
On the other end of the deal, Colony Capital will have quickly built a widespread casino operation with a presence in the four biggest gaming markets in the country. The investment firm already owns Resorts International in Atlantic City, and it recently purchased the Las Vegas Hilton from Caesars (see Streamlining Park Place). Harrah's East Chicago gives Colony a strong presence in the Chicagoland market, and Bally's Tunica offers at least the opportunity to become a player in the Tunica, Miss., market, assuming Colony plans on putting capital to work.
So depending on how you look at it, it's not unreasonable to think that Colony may end up getting its money's worth here.
As for Harrah's, I am amazed at what the company has accomplished over the past year. This time last year, the company snatched Horseshoe Gaming away from riverboat rival Ameristar Casinos
In turn, the pending acquisition of Caesars Entertainment will make Harrah's the dominant player in both the Atlantic City and Tunica markets, and most important, bring Harrah's the Las Vegas Strip presence the company has sorely lacked. Meanwhile, the two companies are still getting paid top dollar for a few properties that don't mean a whole lot to them in the larger scheme of things.
Things could not have worked out any better for Harrah's. And while there will likely be more properties sold, the bulk of the messy work for Harrah's and Caesars was done here in one clean shot.
Fool contributor Jeff Hwang owns shares of Ameristar Casinos.