he casino operator was expected to price the offering last Thursday and begin trading on the Nasdaq last week. Harrah's had said it would raise as much as us$ 531 million for casino projects and to help with its heavy debt burden. A Harrah's spokeswoman said the company is not commenting beyond a brief statement announcing the cancellation and citing market conditions.
However, the company had planned its IPO in what has been a rough time for the casino business, as people cut back on gambling in the tough economy and opted to save their money instead. Harrah's reported a loss of us$ 634.4 million during the nine months that ended Sept. 30, though recently its business, along with the broader casino industry, has shown signs of improvement.
"Certainly conditions for a potential IPO were worse six months or a year ago," said Matt Jacob, an analyst with Majestic Research. But while things have stabilized in most markets where Harrah's has casinos, they "haven't truly improved yet," he added. "Potential investors need to be willing to bet on the recovery of the gaming industry beyond what we have seen so far," he said.
The IPO would have helped ease the company's heavy debt load. Harrah's has nearly $20 billion in debt, and Francis Gaskins, president of IPOdesktop, estimates the company is spending as much as 22 % of its revenue on interest payments. This would put interest payments at about us$ 1.47 billion for the first nine months of the year.
Much of the company's debt was piled on by the two private equity companies, Apollo Management Group and Texas Pacific Group, who took Harrah's private three years ago. Apollo and TPG planned to keep majority control of it after the IPO. They paid us$ 30.7 billion in 2007 in what was one of the biggest leveraged buyouts ever. But that was before the financial crisis hit.
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. Recently, Harrah's business has started to stabilize, and the company had planned to use the IPO to expand. The company said it is not pursuing the IPO "at this time," which Jacob said signals it is not a permanent decision.
Harrah's, which has planned to change its name to Caesars Entertainment, owns or manages more than 50 casinos in 12 states and seven countries.
In a recent note to investors, Jefferies analyst David Katz said that with industry sentiment at a "historical low," new property openings and the improving economy should accelerate earnings growth for casinos and gaming companies.
Harrah's shelved its offering a day after General Motors returned to Wall Street with its IPO.