Harrah’s to capitalize on Rio brand name

Gary Thompson

Tuesday, Aug. 11, 1998 | 11:10 a.m.

Harrah's Entertainment Inc. plans to use Rio Hotel & Casino Inc.'s reputation for excellence to build a new nationwide brand, officials said Monday.

"We now have a platform to move the Rio concept forward, on into the rest of the United States," Rio Chairman Anthony Marnell said at a press conference to explain details of Harrah's plans to acquire one of the top hotel-casinos in Las Vegas.

The merger would allow Harrah's to reward the best players at its 20 regional casinos with comps and other benefits at the all-suites Rio, which has gained a worldwide reputation for its restaurants and overall ambience.

"This isn't an alliance built primarily to add new supply or create cost saving, but one made to serve our customers," Harrah's Chairman Phil Satre said.

Harrah's customer-rewards program, Total Gold, has already made its Harrah's Las Vegas on the Strip one of the few hotel-casinos posting higher revenues and profits in recent quarters. Other hotels have suffered from a glut of rooms and a dearth of visitors.

Rio, which has lured some of the world's biggest high rollers away from such competing resorts as Mirage, Caesars Palace, the MGM and the Las Vegas Hilton, will allow Harrah's to offer its top customers a new level of luxury here.

"Harrah's provides a pipeline of customers and Rio becomes the flagship of the company," Marnell said.

If approved by shareholders of both companies, the $880 million-plus buyout of Rio will give Harrah's three distinct casino brands -- Showboat, Harrah's and Rio. The Showboat acquisition closed in June.

Satre said new Rio-type hotels won't spring up around the country haphazardly or soon.

"We'll look for places that can accommodate the type of resort facilities that Rio offers here in Las Vegas," he said. And Harrah's executives, considered among the best strategic thinkers in the gaming business, will make certain any locale will be able to generate significant returns before spending the money required to build such hotel-casinos elsewhere.

The merger, which has been approved by the boards of both companies, calls for Harrah's to swap its common stock on a share-for-share basis with Rio. Marnell owns about 20 percent of Rio.

The tax-free swap, valued at $518 million based on Harrah's recent trading price of about 20 1/8, will make Marnell the largest individual stockholder of Harrah's with about 4 percent of the common outstanding after new shares are issued. Marnell will become vice chairman of the combined companies.

Some analysts say there's a remote possibility another suitor may make an offer for Rio. But any such bid would have to be substantially higher than 20 1/8 to persuade Rio's major shareholders to take the risk. And it would have to cover the $22.4 million breakup fee Rio would incur if its shareholders don't proceed with the Harrah's deal.

Harrah's and Rio executives will also discuss the merger with Mike Conway, chairman of National Airlines Inc., the new carrier financed in part by $15 million investments from each of the companies.

Marnell said each company owns 19.9 percent of the voting shares in the airline that's schedule to begin low-fare, non-stop service to Las Vegas next spring. He said the talks will be aimed at resolving concerns about the airline's ability to form marketing alliances with other Las Vegas casinos.