MEMPHIS, Tenn. and LAS VEGAS, Aug. 10, 1998 - Harrah's
Entertainment, Inc. (NYSE:HET) and Rio Hotel and Casino, Inc. (NYSE:RHC)
today announced the signing of a definitive merger agreement. Harrah's
will acquire all Rio shares in a one-for-one stock transaction valued at
$518 million based on Harrah's closing price of $20 1/8 on Friday, August
7, 1998. Harrah's will also assume Rio's debt. The Boards of Directors
of both Harrah's and Rio have approved the transaction.
Management expects the transaction to be accretive to earnings in the
first year. Based on an average of analyst estimates, the combined company
will have 1999 revenues of approximately $2.9 billion, and approximately
$740 million of EBITDA. The transaction is expected to be tax free to Rio
shareholders, and it is the intent of the parties that it be accounted
for under the pooling - of - interests method. Anthony A. Marnell II, chairman
and chief executive officer of Rio, will become vice chairman of Harrah's
and a member of Harrah's Board of Directors. Along with James A. Barrett,
Jr., president of Rio, Marnell will continue his executive responsibilities
at the Rio. The Rio hotel and casino will operate as a separate subsidiary
of Harrah's and no changes are expected to its
operation.
Philip G. Satre, chairman, president and chief executive officer of
Harrah's, stated, "The combination of Harrah's and Rio is a natural match
of two companies who share a common vision of leadership and common cultures
of providing the highest levels of customer service. This alignment provides
a platform on which we will be able to exploit unique strategic opportunities
that benefit our shareholders, customers and employees. This combination
is a perfect fit. Our visions are completely aligned.
"Rio is a Las Vegas destination gem, and by all measures, one of the
highest quality and best managed companies in our business. Utilizing Harrah's
strong database management and marketing expertise, we see an unprecedented
opportunity to introduce Harrah's loyal customers to the Rio's resort-style
property, as well as introduce Rio customers to Harrah's Entertainment's
19 properties. Rio will add 1.3 million additional customers into Harrah's
existing 8 million-customer database. We fully expect to see significant
revenue and growth opportunities from the integration of our proprietary
customer recognition and rewards program, Total Gold,
within the Rio customer network," he said.
"Most important, Rio has many loyal customers and one of the strongest
management teams in the business. We welcome them both to the Harrah's
family. We look forward to Tony Marnell's involvement as vice chairman
and a member of the Harrah's Board of Directors and his team's continued
management of the Rio." Marnell stated, "The joining of Harrah's and Rio
creates tremendous value and opportunity for customers, employees and shareholders
of both companies. With Harrah's, we see the ability to accelerate the
Rio's demand driven growth plans while maintaining the high standards of
quality service and value for which we have become known. Harrah's has
an incredible customer recognition system, which will be a significant
advantage for the Rio. We're excited about working with the Harrah's team,
which we have always admired. Harrah's is a first class company."
Colin V. Reed, executive vice president and chief financial officer
of Harrah's, said, "We are excited about the revenue synergies afforded
to Harrah's by this transaction, particularly the addition of the Rio brand
with its strong consumer image appealing to a complementary demographic
segment. More than 50% of Rio's customers are from Las Vegas and the Los
Angeles markets. Harrah's customers tend to come from the East Coast, Midwest
and Northern California. In addition, we believe there is a significant
opportunity to expand Rio's cross-market play by capturing revenues from
Harrah's customers not already playing at Harrah's Las Vegas property.
We see a lot of new and exciting elements at Rio that will contribute to
our growth including a state-of-the-art convention center, Palazzo Suites,
concierge floors and 35-plus acres for future expansion when Las Vegas
demand warrants.
Furthermore, there is the opportunity to expand Rio into other markets
as conditions in the future warrant. "While we recognize the importance
of preserving the uniqueness of the Rio property, this transaction also
provides for a number of significant operating efficiencies in addition
to the revenue synergy opportunities," Reed continued. "On the cost side,
we expect to eliminate redundant corporate overhead, equipment and systems,
insurance and other expenses. Further, our lower cost of capital can provide
significant financial synergies to this combination. We are excited about
the future growth prospects afforded our combined company by this deal
and look forward to working with the Rio management team in integrating
the Rio casino into the Harrah's network."
The transaction is expected to be completed by year-end 1998, subject
to various conditions including regulatory approvals, Rio and Harrah's
shareholder approvals and other third party approvals. As part of this
transaction, Marnell and Barrett have committed to vote their shares representing
approximately 22% ownership of Rio in favor of this transaction. Each Rio
shareholder will receive one share of Harrah's stock for each share they
own. BT Wolfensohn acted as financial advisor to Harrah's for the transaction.
Merrill Lynch Co. acted as financial advisor to Rio.
Rio, through its wholly-owned subsidiary, owns and operates the Rio
Suite Hotel Casino. The Rio presently has more than 2,500 suites and 120,000
square feet of gaming space featuring approximately 2,400 slot machines
and 100 table games in addition to an 18-hole, championship golf course.
Since its founding in 1990, Rio has maintained a strategy of providing
excellence in service, value to customers, world-class accommodations and
culinary excellence to the Las Vegas market. Recognized for its commitment
to excellence, Rio has won numerous industry awards including "Best Value
in the World," by Travel Leisure Magazine, "Best Overall Hotel" in Las
Vegas, by Zagat's, as well as providing the city's "Best Service," "Best
Food" and "Best Accommodations." Rio is the only casino resort to be honored
with the prestigious American Academy of Hospitality Sciences' "Five Star
Diamond Award." Rio won 13 Las Vegas market first place votes in the Casino
Player Magazine annual survey of its readers.
Harrah's, the premier name in the casino entertainment industry, is
the most geographically diversified casino company in North America. With
19 properties worldwide, Harrah's operates casinos in Las Vegas, Reno,
Lake Tahoe and Laughlin in Nevada, and Atlantic City, North Kansas City,
St. Louis, Joliet, Vicksburg, Shreveport, Tunica, Cherokee Smoky Mountains,
Phoenix Ak-Chin, Prairie Band Topeka and Skagit Valley in Washington under
the Harrah's brand name and in Atlantic City, East Chicago and Las Vegas
under the Showboat brand name. A casino in Sydney, Australia, operates
under the name Star City, and is partially owned and managed by Harrah's.
Among Harrah's recent awards and recognition are seven first places and
eight second places in Las Vegas by readers of Casino Player Magazine,
and an unprecedented 15 first places and seven second places in Casino
Player Magazine's Atlantic City rankings.
Statements in this release concerning future events, including
the anticipated completion of the transaction, future performance and business
prospects are forward-looking and are subject to certain risks and uncertainties.
These include, but are not limited to, anticipated future performance,
economic and debt and equity market conditions, changes in laws or regulations,
third party relations and approvals, decisions of courts, regulators and
governmental bodies, factors affecting leverage, including interest rates,
and effects of competition. These risks and uncertainties could significantly
affect anticipated results or events in the future and actual results may
differ materially from any forward-looking statements.
Transaction Summary
This is a strategic combination of two companies that share a single
vision, yet offer distinct and highly complementary products, strengths,
attributes and customer bases. On August 10, 1998, Harrah's announced
the signing of a definitive agreement to merge with Rio in a one-for-one
stock transaction valued at $518 million based on Harrah's closing price
of $20 1/8 on Friday, August 7, 1998. Under the terms of the agreement,
Harrah's will also assume Rio's debt. The Boards of Directors of
both Harrah's and Rio have approved the transaction. Based on an
average of analysts' estimates, the new Harrah's will have pro forma 1999
revenues of approximately $2.9 billion and approximately $740 million of
EBITDA. Management expects the transaction to be accretive to earnings
in the first year.
New Company at a Glance
(all figures are pro forma)
Total Net Revenues |
$2.9 billion* |
EBITDA |
$742 million* |
Common Shares Outstanding |
126 million |
Fiscal year |
12/31 |
Headquarters |
Memphis, TN |
Total Casinos |
20 |
Geographic Diversity |
15 casino markets |
Casino Brands |
Harrah's, Showboat, Rio |
Total Employees (US) |
35,000 |
*Based on average of analysts' estimates
Highlights of the Transaction
Geographic Distribution: This combination provides Harrah's
with a resort destination that will offer its customers a fully developed
resort alternative to its existing center-strip location. Through
Harrah's unique and innovative recognition and rewards program, Total Gold,
Rio's Las Vegas customer base will have the incentive to visit Harrah's
in the Las Vegas market and when they visit other casino markets.
There are substantial revenue synergies expected.
Complementary Customer Base: Significant opportunities exist
to strategically expand Rio's cross-market play through Harrah's database
management and marketing strength. Unlike Harrah's, more than 50% of Rio's
customers are from Las Vegas and the Los Angeles markets. Now Harrah's
will offer customers who frequent Las Vegas two different high-quality
experiences, a strip destination and a resort experience.
Service Quality and Physical Appearance: In creating Rio, management
mirrored Harrah's service excellence and philosophy. Rio is a special property,
truly a Las Vegas gem for its unique and innovative concept, a flagship-style
asset. Rio has also won "Best Overall Hotel" from Zagat, "Best Value in
the World" by Travel and Leisure and Rio is the only casino resort to receive
the prestigious Academy of Hospitality Sciences' "Five Star Diamond Award."
In the 1998 Casino Player "Best of Gaming" readers' poll, Rio and Harrah's
won 20 first place awards out of 50 categories in Las Vegas. In Atlantic
City, Harrah's alone won 15 first place awards, more than any other casino.
Brand Infrastructure: With Harrah's leadership and market strength,
the Rio name will be able to realize its growth potential outside of Las
Vegas and to be selectively extended to other markets. Adding a third unique
brand under the Harrah's umbrella, Rio provides additional opportunity
for aggressive customer expansion and retention strategy. Harrah's industry-leading
Total Gold program, will extend to Rio's customer base and provide further
incentive for cross-customer loyalty among the Harrah's, Showboat and Rio
brands. Harrah's realizes the value of keeping the brand identities separate
and will focus on retaining the unique operating characteristics of each
brand.
Operational Excellence: Harrah's and Rio management are committed
to the highest quality customer experience as well as investing in property,
plant, marketing and technology. The most critical element driving the
success of these companies is a dedicated team of employees. It is crucial
to the ongoing success of the Rio and the potential application of the
Rio brand to additional locations that Rio retains its unique culture.
Transaction is accretive and will create significant synergies:
The transaction will be accretive to year one EPS before extraordinary
charges. The transaction is even more accretive long-term assuming cost
efficiencies and revenue synergies are achieved. Harrah's expects to save
$7 million annually phased-in over two years; year one savings assumed
to be approximately half that amount. In addition, Harrah's expects to
reduce Rio's interest costs by taking advantage of Harrah's lower cost
of debt.
Revenue Synergies Accomplished in Four Ways: From customers who
are Harrah's loyal and stay at Harrah's Las Vegas, but also venture out
to experience a second more resort-style Las Vegas location to play and
dine. From customers who are loyal to Harrah's in one of Harrah's other
casino markets across the country, but want a destination resort experience
when they visit Las Vegas. From Rio customers who are looking for a second
Las Vegas experience on the strip. From Rio customers who travel across
the United States for gaming experiences, and are not currently directed
or rewarded for any particular choice.
History/Background: Harrah's
Harrah's was founded in 1937 by casino gaming entrepreneur Bill Harrah.
It has grown to become the most geographically diversified casino company
in North America. Harrah's operates casinos in Las Vegas, Reno, Lake
Tahoe and Laughlin, Nevada; and Atlantic City, North Kansas City, St. Louis,
Joliet, Vicksburg, Shreveport, Tunica, Cherokee Smoky Mountains, Phoenix
Ak-Chin and Prairie Band-Topeka under the Harrah's brand. Atlantic
City, East Chicago and Las Vegas under the Showboat brand. In Sydney,
Australia under the name Star City. Across all its markets, Harrah's
casinos comprise approximately 1,063,000 sq. ft. of gaming space, 27,100
slot machines and 1,180 table games; complemented by 9,150 hotel rooms;
and supported by 38,000 parking spaces.
Harrah's is the most recognized name in the casino entertainment industry.
Founded more than 60 years ago, Harrah's is focused on building loyalty
and brand value with its targeted customers through a unique combination
of excellent products and services, unsurpassed distribution, operational
excellence and technology leadership. Harrah's operates casinos under the
Harrah's and Showboat brand names. The heritage of the Harrah's name is
one of innovation, growth, integrity and customer service in the casino
entertainment industry. Harrah's focuses on the gaming experience for highly
valuable target customers, particularly those who play in more than one
market.
History: Rio
Rio, through its wholly-owned subsidiary, owns and operates the Rio
Hotel and Casino, opened in 1990 as the country's only all-suite hotel
casino, with 424 suites on 30 acres of land. Since 1990, the company
has acquired additional land and expanded pursuant to its master plan and
customer demand, to its current status as the 13th largest hotel in the
world. The Rio presently has over 2,500 suites and 120,000 square
feet of gaming space featuring approximately 2,400 slot machines and 100
table games, in addition to an 18-hole, championship golf course.
Rio has 35 acres of land available for future development. Since
its founding, Rio has maintained a strategy of providing excellence in
service, value to customers, world-class accommodations and culinary excellence
to the Las Vegas market. Recognized for its commitment to excellence,
Rio has won numerous industry awards for its facilities and service excellence.
This document contains certain forward-looking statements
regarding the Company's beliefs, goals, anticipated results, and expectations
which involve risks and uncertainties. The Company's actual results could
differ materially from the results anticipated in these forward looking
statements as a result of certain of the risk factors set forth in the
Company's filings with the Securities and Exchange Commission including
quarterly reports on Form 10-Q, reports on Form 8-K, and annual reports
on Form 10-K. |