Almost two months ago, private equity firms Apollo Management and Texas Pacific Group shocked investors by offering $15 billion -- or more than $25 billion, including debt -- to buy out Harrah's Entertainment (NYSE:HET), the world's largest casino operator (see $25 Billion Buyout Offer for Harrah's No Good). Reportedly, the two firms have since raised their offer by another half-billion. Now it appears that a casino operator is set to join the fray with a rival bid.

On Tuesday, CNBC reported that a group led by casino operator Penn National Gaming (NASDAQ:PENN) and hedge fund D.E. Shaw are considering making a cash and stock offer for Harrah's. Lehman Brothers (NYSE:LEH) and Wachovia Corp. (NYSE:WB) would also provide financing and would have some equity in a successful acquisition bid.

A potential acquisition makes strategic sense for Penn National. Harrah's has substantial assets in the Las Vegas Strip and Atlantic City markets, where Penn has none. These assets would transform Penn from a regional player -- one that is less than a quarter of Harrah's size, with $2.2 billion in annual revenue -- into a national powerhouse. Harrah's would also provide an upgrade in every market in which Harrah's and Penn National compete, including St. Louis; Kansas City; Tunica, Miss.; Gulfport/Biloxi, Miss.; and Chicagoland. However, a successful acquisition would likely require the sale of several assets in the aforementioned markets. Penn would also get Harrah's coveted Total Rewards program. Moreover, Penn's bid would be more favorable to Harrah's shareholders, because of extra licensing hurdles that the private equity firms would face.

In essence, Penn National would become Harrah's -- plus the racino assets that Penn National owns and the ultra-successful Argosy Lawrenceburg riverboat casino near Cincinnati. And if Harrah's price is right for two private equity firms based strictly on value, it probably can't be wrong for Penn National, especially when an acquisition comes with strategic benefits.

It seems increasingly likely that Harrah's will, in fact, be sold in the not-so-distant future. If and when a deal does get done, a host of properties could be up for grabs. Their specific nature depends on the acquirer (for example, if Penn acquires Harrah's, it would probably choose to sell its own properties in several of the overlapping markets). Several companies, including Boyd Gaming (NYSE:BYD) and Pinnacle Entertainment (NYSE:PNK), would certainly be active acquirers. And barring its own sale in light of the death of CEO and majority shareholder Craig Neilsen, Ameristar Casinos (NASDAQ:ASCA) may also have an interest in some of the properties in Mississippi.

Fool contributor Jeff Hwang owns shares of Ameristar Casinos, a selection of Motley Fool Hidden Gems . To see which other small caps Tom Gardner and his team have picked as poised for great returns, take a 30-day free trial of the service. The Fool's disclosure policy loves the free buffet.