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Welcome to the News desk. |
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Harrah's pulls $575m flotation as gaming hits a losing
streak |
19/11/2010 |
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Edward Helmore in New York |
Harrah's Entertainment, the major US
gambling group, which operates Caesars Palace in Las Vegas and four casinos in
London, has abruptly shelved plans for a $575m (£360m) share offering in
New York, citing weak investor demand.
The cancellation, which came on the heels of a
$22bn General Motors share offering launched successfully in New York, has sent
a chill through the gambling and private equity industries.
Harrah's,
which is renaming itself Caesars Entertainment, operates the Rendezvous Casino
in Mayfair and the Golden Nugget off Piccadilly Circus, the World Series of
Poker tournament, as well as 50 hotels and casinos in the US under the Caesars,
Harrah's and Horseshoe brands.
One of the largest global gaming companies, Harrah's public offering
comes less than three years after it was purchased for $31bn by the New York
private equity firms TPG and Apollo Management.
Leading financiers,
including the sub-prime hedge fund king John Paulson, are exposed; the company
says it is keeping its options open on a future offering.
The failure
to complete the initial public offering (IPO) suggests that the eagerness of
banking and private equity to get into the gambling business was misguided.
Expectations of an online gambling boom have not been realised; the US
industry, where Harrah's is focused, has been hit hard by the two-year downturn
in consumer spending. Last year, the casino operator MGM nearly collapsed under
its $14bn debt. While stocks in operators such as Las Vegas Sands and Wynn
Resorts have risen this year, most growth has come from a Chinese-driven gaming
boom in Macau.
Despite Las Vegas's ardent efforts to promote itself
through Hollywood movies as the anything-goes capital of America, the desert
city is experiencing the worst downturn in its history. Property values in what
was the fastest-growing city in the US five years ago have collapsed and the
surrounding municipality of Clark County is in effect insolvent. Unemployment
stands at 14.3%, well above the 9.5% national average.
In the
post-credit crunch landscape, banks have had to pick up the pieces. Next month,
Deutsche Bank will become owner of the Vegas strip's newest hotel-casino, The
Cosmopolitan, after its original developer defaulted on a $1bn loan. The bank
then put $3bn more into the hotel, which features the rapper Jay-Z at its New
Year's Eve party and is promoted with the slogan: "Just the right amount of
wrong."
For Harrah's, the only US operator without a casino in Macau,
the plan to sell less than 10% of company stock in an uncertain market for
public offerings was itself a gamble. Harrah's has reported a loss of $634.4m
in nine months. As the most highly leveraged of the big casino firms with $20bn
in debt, it paid about $1.47bn interest over the same period.
Analysts
say the industry is picking up but is not strong enough to withstand the test
of an IPO amid fears over European debt woes and China's currency controls.
In a speech to a gaming convention last week, Harrah's president Gary
Loveman indicated that a major block to growth of casino companies was lack of
consumer access. Loveman said casinos should be given the same freedom to
market as other products or activities considered unhealthy, such as alcohol or
fast foods. "It should offend us every day that adults can't entertain
themselves in the way that they want to when they have access to so many other
things," Loveman said.
Gambling industry executives in Vegas claim the
market is improving, with international visitors up 8% on a year ago. But after
years of price-cutting, many visitors are considered "low rollers" drawn by
cheap hotel rooms but gambling little. |
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