arrah's is planning on going public at us$ 15-17 and selling 31.25 million shares. 2010 has been a bad year for IPO's from private-equity sponsors and institutional investors have told Barron's "they won't participate in this deal because of the company's debt load and stock's lofty valuation."
The third quarter revenue for Harrah's was 2.3B and pre-tax cash flow fell 9%. Cash flow was also down 13% the first nine months of this year. According to Barron's, "Even assuming a 15% increase in 2011 cash flow to us$ 2.1 billion, Harrah's would still be financially constrained given its high interest expense."
Investors will get another chance to roll the dice on the world's biggest casino operator next week. It may be a risky bet, according to some observers. Its shares will start trading at a financially precarious time for the casino business. Like the rest of the industry, Harrah's and other casino companies hit a wall during the recession as people opted to save their extra cash rather than gamble it. Results for the first nine months of this year suggest casino visitors aren't yet ready to spend the way they used to.
In a recent securities filing, the company said it lost us$ 634.4 million during the nine months that ended September 30. Revenue over the same period totaled us$ 6.7 billion, down from us$ 6.8 billion in the first nine months of 2009.
For the quarter, it lost us$ 165 million. But its revenue edged up about 0.4 % including results from its February acquisition of Planet Hollywood.
Harrah's, which owns or manages more than 50 casinos in 12 states and seven countries, is burdened with close to us$ 20 billion in debt. A lot of it was piled on by the two private equity firms - Apollo Management Group and Texas Pacific Group - that took the company private three years ago and that plan to keep majority control of it after the IPO.
Francis Gaskins, president of the research firm IPOdesktop, said Harrah's is spending 22 % of its revenue on interest payments. On the other hand, investors looking to bet that the worst is past for the casino business may have an opportunity. "It's going to be the hot stock in this sector," said IPO financial's David Menlow.
He said Harrah's has been smart to look beyond the traditional casino business, moving into online gambling in countries where it is legal and building up the World Series of Poker brand. Also, the company's latest quarterly results suggest its business has at least begun to stabilize. Apollo and Texas Pacific's us$ 30.7 billion takeover deal in 2007 ranked as one of the biggest leveraged buyouts ever. The company's revenue, which peaked the year of the buyout at us$ 10.8 billion, tumbled 6 % to us$ 10.1 billion in 2008.