Harrah’s buys Rio, boosting stake in airline

Gary Thompson

Monday, Aug. 10, 1998 | 10:36 a.m.

Harrah's Entertainment Inc. said today it has agreed to buy Rio Hotel & Casino Inc. for about $880 million in stock and assumed debt.

The merger gives Harrah's an upscale all-suites Las Vegas property and a bigger stake in a new airline that will help transport Harrah's customers between its 20 casinos around the country.

The Rio hotel-casino at Flamingo and Valley View, a favorite for both locals and tourists, will retain its name.

The deal calls for an even swap of one Harrah's share for each of the 35.3 million outstanding Rio common shares, plus assumption of about $263 million in Rio debt.

Harrah's stock, which closed at 20 1/8 Friday, slipped to 20, down 1/8, on 350,000 shares in mid-morning trading today.

Rio rose to 19 1/4 on 506,000-share volume, up from Friday's close of 18 7/8 and above the 52-week low of $16.50 hit just last Wednesday.

"I think it's a great merger -- a natural -- involving two of the most progressive companies in gaming," said Dave Ehlers, chairman of Las Vegas Investment Advisors Inc.

"Harrah's got a very good property at a very good price. They got a bigger interest in an airline that could re-arrange the landscape of Las Vegas.

"I think the agreement reflects the fact that both managements understand where the industry is going. They know the interests of their customers and have put together the proper tools to serve them," Ehlers said.

"It's a great merger for Rio because it spreads their investors' assets throughout the country rather than concentrating them in Las Vegas, which faces concerns about too many hotel rooms," said Andrew Zarnett of Ladenburg Thalmann & Co.

"It's also better than selling to a real estate investment trust, because Harrah's is an experienced gaming operator with strong management, reduced borrowing costs and lower operating costs.

"It gives Harrah's a more upscale property in Las Vegas and more entertainment options there for its best customers," Zarnett said.

"From our perspective, we couldn't be more pleased with Rio becoming part of the Harrah's group of properties," said Mike Conway, chairman of National Airlines Inc.

Harrah's and Rio each invested $15 million in the new air carrier, which is scheduled to begin long-haul, low-fare service non-stop service to Las Vegas next spring. Together, they'll have four directors on National's 11-member board.

"What already promised to be one of the most dynamic marketing alliances ever formed between an airline and hotel-resort properties just got better," Conway said.

Memphis-based Harrah's said the transaction would boost the combined entity's 1999 revenues to an estimated $2.9 million, generate about $740 million of cash flow and immediately increase per-share earnings.

"Rio is a Las Vegas destination gem and, by all measures, one of the highest quality and best managed companies in our business," Harrah's Chairman Phil Satre said.

"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 around the country," he said.

Rio will add 1.3 million customers to Harrah's 8 million-customer database, which is the focal point of the company's highly successful Total Gold rewards program.

Rio Chairman Anthony Marnell will become vice chairman of Harrah's, and Rio President James Barrett will retain his position at the off-Strip property.

Marnell owns 20.7 percent and Barrett 19.2 percent of Rio's outstanding common shares.