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Harrah's Takes Caesars

Updated from 10:04 a.m. EDT

Harrah's Entertainment (HET) Thursday said it will acquire Caesars Entertainment (CZR - Get Report) in a cash-and-stock deal valued at $9.44 billion, creating the world's largest casino operator.

Under terms of the transaction, Caesars will receive $1.8 billion in cash and 66.3 million shares of Harrah's Entertainment common stock. The price tag also includes 4.2 billion in debt. A certain number of Caesars' current directors will join Harrah's board.

Based on the closing price of Harrah's shares on July 14, 2004, the transaction values Caesars common shares at $16.96.

Caesars shares fell 94 cents, or 5.9%, to $15.06 while Harrah's shed $3.14, or 6.2%, to $47.84.

With Caesars shares tacking on 15% yesterday, analysts say the stock doesn't have much upside left and moved to downgrade the company. Both Fulcrum Global Partners and Prudential Equity Group cut their ratings on the company, saying it was fully valued at the present time. (Fulcrum does and seeks to do business with the companies covered in its research report -- Prudential does not have an investment banking business.)

The deal comes just one month after MGM Mirage (MGG) bought Mandalay Resorts Group (MBG) for $4.8 billion and cash and more than $4 billion in debt , creating the largest gaming company in the world.

"This acquisition will solidify Harrah's position as the pre-eminent distributor of casino entertainment," said Gary Loveman, Harrah's Entertainment president and CEO. "We are adding attractive assets in stable markets with outstanding long-term growth prospects where we have a demonstrated record of success. Our network will also be enhanced as Caesars provides us access to new markets and new customers."

As a combined company, Harrah's and Caesars will leapfrog MGM-Mandalay as the largest casino operator in the world, with 54 casinos across an extremely diverse array of markets, from glitzy upscale resorts to decidedly down-market gambling halls. In Las Vegas, the combined companies would control Harrah's, Caesars, Bally's, Horseshoe, Paris, Grand and Showboat, consolidating another chunk of the Strip not owned by the combined MGM-Mandalay.

All told, the duo will have nearly 100,000 employees and $8.8 billion in annual revenue. In comparison, the combined MGM-Mandalay can count 28 casinos and $6.4 billion in annual revenue.

When news of the possible deal's first emerged Wednesday, many on Wall Street took a dim view of the move on first blush, arguing that it makes no strategic sense and would likely draw the ire of government regulators.

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