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Harrah’s Offers Shares

Posted on November 14th, 2010

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This coming week, the world’s largest casino company will be offering stcoks its patrons. Customers who want to be part of the company can be investors and funnel serious money into the company, which if some observers are to be believed, can be quite risky. As early as the beginning of this week, Harrah’s Entertainment Inc. has already made some noise by announcing the IPO to be available in Nasdaq. Moreover, just to attract more attention and perhaps implement an image change, the company has also announced that it will change its name to Caesars Entertainment Corp. by the time its initial public offering will close. The IPO is expected to raise as much as $532 million.

This start of stock offering is done at a time when the casino industry is at an uncertain position. Along with the rest of the industry’s major players, Harrah’s had to overcome major financial difficulties during the recession that started in 2008. During that time, people opted to keep their extra cash instead of gambling it, triggering a slump in casino attendance and revenue. Despite the recent stabilization of the industry the recent quarters, analysts are claiming that the current situation is still very far from a comeback. The figures for the first nine months of the year indicate that as much as there is already a return of a portion of confidence in the industry, most good news is still coming from the Far East markets and gamblers may now be returning to gambling, but not as frequently and as lavishly as they used to pre-2008.

In a filing the company did with the securities commission, Harrah’s claimed that its earnings still have not recovered. In fact, from January to September, the company claims it has incurred losses amounting to $634.4 million ending September 30. Revenue for the nine months totaled $6.7 billion which is a $0.1 billion decrease from its income for the same period in 2009. For the third quarter, the company lost $165 million. The revenue for the third quarter picked up by 0.4 percent as results were positively affected by the acquisition of Planet Hollywood which happened in February. Harrah’s currently has under its management and/or ownership more than 50 gambling facilities. These casinos are scattered in 12 US states and seven countries around the world. With the losses and tepid income, the main problem the company has had to face for years is the mountain of debt is has to face. Currently, debt figures for the company have reached close to $20 billion. Most of this debt was contributed by two private equity firms that took the company private in 2007. Apollo Management Group and Texas Pacific Group are planning to still have the majority control of the company even after the IPO.

Francis Gaskins, president of the research firm IPOdesktop, explained that 22 percent of Harrah’s revenue is being spent by the company on paying interest to these debts, indicating that the company may never be out of debt anytime soon. But on the other hand, investors feel that the worst is over for the casino industry in general and the company in particular, and that the IPO may give both the company and its investors a great chance at making good money. David Menlow, an analyst at IPOfinancial, said, “It’s going to be the hot stock in this sector.” He also claims that the recent business decisions of the company have been to its advantage including venturing into online gaming and standing by gthe World Series of Poker brand. Moreover, as the company’s latest quarterly results suggest, the business may already be in the process of stabilizing.

Harrah’s claims that aside from paying debts, the IPO will also help the company to expand. It plans to funnel more cash into the continuation of the construction of the Octavius hotel tower at Caesars Palace on the Strip. The construction of the facility came to a stop in 2009 because of financial constraints, with its exterior only done so far. Harrah’s also plans to use the IPO to fund a joint venture with Rock Gaming LLC for a facility in Ohio, plus an entertainment and dining area that would connect the Imperial Palace and Flamingo on the Las Vegas Strip