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Harrah's IPO: What You Need to Know

Harrah's is looking to offer $575 million in common shares. Should you buy into the IPO?



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Harrah's Entertainment

announced on Monday that it plans to sell $575 million in shares through an initial public offering. Thinking about dipping your toe into the world's biggest casino company? Here's what you need to know about the potential IPO:

Proceeds from the IPO would be used to develop a new retail and entertainment complex on the Las Vegas Strip, the completion of a hotel tower at Caesars Palace and a potential joint venture in Ohio.

Hedge fund Paulsen & Co., which bought into the company back in June, would also sell $710 million in stock at the time if the IPO.

>>Top 5 Casino Stocks: Earnings Preview

Harrah's was taken private in January 2008 in a $28 billion leveraged buyout by

Apollo Global Management


TPG Capital

, just as gambling in Las Vegas was taking a turn for the worse.

The Las Vegas-based casino operator has a very similar profile to

MGM Resorts

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(MGM) - Get MGM Resorts International Report

. While there has been skepticism surrounding the future of MGM, this doesn't mean investors shouldn't look at Harrah's.

Like MGM, Harrah's is laden with debt totaling more than $20 billion. But this debt extends further than MGM's, into 2015. While Harrah's predominantly operates in Las Vegas, it's more diversified in other regional markets, like Louisiana and Indiana, than is MGM.

In its second quarter, Harrah's swung to a loss, weighed down by consumers cutting back on gambling.

While sentiment for Las Vegas has brightened somewhat, after gaming revenue soared 21% on the Strip in August, this doesn't mean a near-term recovery is imminent.

MGM dashed these hopes when it reported disappointing preliminary third-quarter earnings results

, saying it expects to incur a loss of 72 cents a share.

The biggest concern on the Las Vegas Strip, where Harrah's operates eight casinos, is that lower-tiered properties are rebounding slower than higher-end casinos. "Rates are so low at the luxury casinos, it's hard to justify keeping the lights on at some of the lower tiered," says Sterne Agee analyst David Bain.

So why is Harrah's deciding now is the time for an IPO? "They must be salivating over the valuation MGM got for its offering," Bain says.

Last week, MGM announced it will be sell at least 68.7 million shares to raise about $500 million in new capital, which will help it address 2011 and 2012 debt refinancing needs. MGM will sell at least 40.9 million shares, while Tracinda, which is run by Kirk Kerkorian, will sell 27.8 million.

These recent moves by MGM to boost its capital structure are, no doubt, alluring to Harrah's. The question is, will it be as successful?

--Written by Jeanine Poggi in New York.

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