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Blue Ocean Strategy Case Study

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Case Title:

Casinos Blue Ocean for Private Equity-after Change

Publication Year : 2006

Authors: Sweta Chhaochharia, Kumar Satyaki Ray

Industry: Leisure and Tourism

Region:US

Case Code: BOS0011K

Teaching Note: Not Available

Structured Assignment: Not Available

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Abstract:
On October 3, 2006, Las Vegas based Harrah’s Entertainment Inc. (HET), the world’s biggest casino operator, announced it was considering a $15.05 billion or $81 per share buyout offer from private equity firms Apollo Management and Texas Pacific Group (TPG). Combined with HET’s long-term debt of nearly $10.7 billion as of June 30, 2006, the buyout proposal carried a value of $25.75 billion making it the fifth largest leveraged buyout ever. The proposed deal signaled new interest in the gambling sector for private equity groups. Until the 1990s, casino companies were not able to attract private equity or other firms for a buyout because of regulatory requirements. But from the acquisition of Harvey’s Casino Resorts by Colony Capital in 1998, private equity players had shown their increasing interest in the casino industry.

The case will cover whether the casino giant would prove to be an intelligent choice for the private equity firms. Subsequently, the case would cover some more issues such as (a) Prospective synergies and risks for both the acquirer and the target company, and (b) Increasing appeal of gaming companies.

A casino was a facility that accommodates certain types of gambling activities. Casinos were often placed near or combined with hotels, restaurants, retail shopping, cruise ships and other vacation attractions.

Colony Capital was a private international real estate investment firm in Los Angeles, California.

Pedagogical Objectives:

  • To understand the US casino industry
  • To discuss why the private equity firms are increasingly making the gaming companies their takeover target
  • To understand the business model of the private equity firms
  • To understand the business model of Harrah’s Entertainment Inc. (HET), the world’s biggest casino operator
  • To analyse the prospects and perils of the acquisition of the HET by the private equity firms

Keywords : Mergers,Acquisitions,Alliances Case Study;Gaming companies; HET (Harrah's Entertainment Incorporated); Texas Pacific Group (TPG); UBS Securities; Caesars Palace; Apollo Management; Casino industry; Private equity; Gross annual revenue (GAR); Las Vegas Strip; Leverage buyout; Hurricane Katrina; Hurricane Rita; Warburg Pincus; Burger King

Contents: 
Industry Background
The US Casino Industry
Private Equity Firms
Harrah’s Entertainment Inc. (HET)
Apollo Management
Texas Pacific Group
U.S. CASINO MARKETS, 2005
Private equity funds

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