Anyone who follows pop culture knows Las Vegas is red hot.
With televised poker tournaments, network dramas and reality shows, Sin City has once again captured a central spot in the public imagination.
The city's resurgence, reflected in rising hotel bookings and convention attendance, has led to two blockbuster acquisition deals that, if approved by regulators and shareholders, would reduce the U.S. gambling industry to two major companies and set up a struggle for dominance on the neon-soaked Las Vegas Strip.
First came MGM Mirage Inc.'s bid last month to acquire the Mandalay Resort Group, a deal that would give the combined company a strong position in Vegas's high-end gambling market and put plush resorts such as Bellagio, the Mirage and Luxor all under the same corporate roof.
Now Harrah's Entertainment Inc. has agreed to acquire Caesars Entertainment Inc. for more than $5 billion, a deal that would create the world's largest casino company, with nearly $9 billion in annual revenue. It would control several top names clustered on the Strip and many mid-market gambling parlors across the country.
Gambling industry analysts said the Harrah's-Caesars deal was almost mandated by the MGM-Mandalay arrangement, since Harrah's and MGM compete for dominance in an industry that has been consolidating for years.
"We are very bullish on Las Vegas, and until this deal Harrah's, had little exposure to the Strip," said Gerard F. Petrik Jr., an analyst at Legg Mason in Baltimore. "The MGM-Mandalay merger would give MGM total dominance on the south part of the Strip. What this does for Harrah's is give them a good nucleus right in the middle of the Strip. . . . Plus they get the Caesars brand name." Legg Mason owns shares in Harrah's but does not have a banking relationship with the company. Petrik does not own stock in either Harrah's or Caesars.
Under the deal, which, like the MGM-Mandalay agreement, is likely to face significant antitrust scrutiny, Caesars shareholders would receive $1.8 billion in cash and 66.3 million shares of Harrah's common stock. According to Harrah's, the total value of the deal, including assumption of Caesars debt, would be about $9.44 billion.
Harrah's stock price dropped $3.07, or 6 percent, to $47.91 yesterday. Shares in Caesars lost 95 cents, or nearly 6 percent, to close at $15.05.
In a conference call with reporters, Harrah's chief executive Gary W. Loveman said the terms were fair to shareholders of both companies and made strategic sense in light of Las Vegas's rising popularity.
"The strategic merits of the deal are clear and extremely compelling and very easy to characterize," he said. "In short, we are acquiring assets in very desirable locations with largely similar customers to our own and we feel strongly that we will be able to improve the performance of these assets.
"It has been my view for some time that this industry will consolidate into two leading large operators, a trend that we have observed in many other consumer businesses," Loveman said.
The gambling-company deals come during a busy period of mergers and acquisitions, marked by combinations in banking, law and other industries. According to Dealogic LLC, a research firm, companies have completed $434 billion worth of mergers and acquisitions this year, compared with $235 billion at the same point last year.
Loveman acknowledged yesterday that the Harrah's-Caesars deal will receive serious attention from antitrust regulators in Washington, especially in light of the MGM-Mandalay deal, which is already being reviewed.
Lloyd Constantine, an antitrust expert at Constantine & Partners in New York, said that because the gambling market is already highly concentrated, the deals will likely face significant hurdles.
"It may be the case that either one of these transactions alone might fly under radar but what you have is two big mergers going on at the same time. So they will get significant review by the antitrust authorities."
Constantine said the companies will probably argue that each must complete its deal because of the other -- and regulators could respond by approving both or neither.
Las Vegas gamblers may not notice much difference if the mergers go through, analysts said. "People who go out to Vegas and stay at Luxor or wherever usually have no idea who owns the property," said George L. Smith III of brokerage firm Davenport & Co., which owns shares in Harrah's.
But Smith noted that Harrah's has a consumer loyalty program at its casinos outside Las Vegas, which offers customers who gamble at one location future discounts at others.
That could result in customers going to the company's Strip locations to take advantage of the gambling world's version of frequent-flier miles and, in turn, could make it harder for casinos near Harrah's locations to compete. "It could hurt the independent entities and change the [Las Vegas] landscape," Smith said.