Updated from 10:04 a.m. EDTHarrah's Entertainment ( HET) Thursday said it will acquire Caesars Entertainment ( CZR) 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
The Harrah's and Caesars pairing, which has a high level of concentration in Atlantic City, Tahoe and other regional markets, will certainly be scrutinized by government regulators who will force the duo to divest some properties. In Atlantic City, where casino operators are only allowed to own three casinos, Harrah's and Caesars would have five, potentially forcing the sale of two properties. Ultimately, with the Harrah's deal coming at the same time as the MGM deal, both mergers could fail with regulators fearing an oligopoly is forming in Las Vegas. All told, the two recently formed behemoths would control nearly 80% of the rooms on the Las Vegas Strip. The companies said the transaction is expected to close in about a year, depending on regulatory and shareholder approval.