Thursday, June 26, 2003
Copyright © Las Vegas Review-Journal

OVERSEAS PARTNERSHIP: New venture may set pace

Others seen to follow Harrah's

Harrah's President Gary Loveman said Wednesday the deal between Harrah's and Gala Group was in negotiations for a year. REVIEW-JOURNAL FILE PHOTO

Harrah's Entertainment Inc. and the London-based Gala Group expect to generate more than $800 million in revenues a year from jointly developing casinos across Britain, Harrah's President Gary Loveman said Wednesday.

The joint venture partners signed a letter of intent early Wednesday to take Las Vegas-style gambling to Britain by building at least eight new casinos ranging in size from 30,000 square feet to 50,000 square feet.

Loveman said in an interview teleconferenced from London that the deal was in negotiations for a year.

Together, the two companies plan to invest $1 billion, $500 million each, that they will raise through equity issues and added debt, he said.

The added debt will not affect Harrah's ability to offer dividends, which Loveman said the company's board of directors will consider in the near future.

The development of the casinos is dependent on regulatory approvals and the reform of England's gaming laws, which Loveman said he expects to happen in the "fairly near future."

Gala Group Chief Executive Officer John Kelly said the 8,000 the partnership expects to create "will allow me to put significant leverage on government to encourage deregulation."

Loveman said Harrah's is still eyeing development of two destination casino resorts in Great Britain, but the company will focus its business in England on its joint venture developments.

Wall Street analysts applauded the partnership because of the potential British market and the Gala Group's solid brand and reputation in Europe.

"Given Gala's solid brand and reputation in Europe, we think the company has teamed up with a solid partner," said Deutsche Bank analyst Marc Falcone. "The agreement with Gala fits into management's strategy to pursue increased geographic distribution, while leveraging the Harrah's brand in marketing programs and expertise in managing slot machines."

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said, "On a risk adjusted basis, this is a good way for them to have a call option in a market that could be big if it expands."

"If the market does not expand, then this isn't such an enormous opportunity," he said.

Analysts also predicted other Las Vegas operators likely will follow suit, particularly Park Place Entertainment Corp. and Mandalay Resort Group.

"Given recent announcements forged by other operators like MGM Mirage, we would not be surprised to see several other U.S. operators announce similar agreements over the next few quarters. While reforms could take several years to materialize, we think it could be well worth the wait," Falcone said.

Park Place spokesman Robert Stewart, however, said while his company "considers the U.K. a market with great potential, we believe legislation legalizing Las Vegas-style gambling is still a long time off."

"From our perspective, it would make sense to determine what the tax structure and rules and regulations will be before we make a significant investment in the marketplace," he said.

Mandalay Resort Group could not be reached for comment.

MGM Mirage previously announced a deal to buy a 25 percent share of a small British casino developer. The company has not disclosed the amount it was spending to buy the stake in Metro Casinos Ltd., which is developing a casino in Bristol that is due to open by year's end.

The two companies have agreed to work together to develop additional Bristol casinos as well as a possible expansion of the Westcliff Casino, in Westcliff on Sea, on England's southern coast.

RJ Brown Holdings, the private company that now owns Metro Casinos and plans to sell a stake to MGM Mirage, owns Westcliff. The sale requires the approval of the Gaming Board for Great Britain, which regulates casinos in the United Kingdom.