Harveys may attract new suitors

Tuesday, Feb. 3, 1998 | 10:50 a.m.

An analyst says the $28 offering price by Colony Capital Inc. for Harveys Casino Resorts seems too low and that competing bids might crop up before the deal - slated for completion before September - can be consummated.

Bruce Turner of Salomon Smith Barney noted Colony's $420 million offer is 6.2 times Harveys cash flow - about 30 percent below the multiples in the recently announced acquisitions of Showboat Inc. by Harrah's Entertainment and Station Casinos Inc. by Crescent Real Estate Equities.

Charles Scharer, chairman, president and chief executive of Harveys, acknowledged "there certainly is the possibility of other bidders."

But he insisted Colony's offer is "a great transaction for our shareholders." He noted that because the deal is "all cash, no stock," there will be "no uncertainty about the currency tendered."

Scharer said the deal with Colony has the approval of the Ledbetter family - descendants of husband-and-wife founders Harvey and Llewellyn Gross - who own close to 40 percent of the shares through a family trust.

Three members of the family sit on the Harveys board, and one of them - Kirk Ledbetter, grandson of the founders - also serves as director of community affairs and government relations.

Scharer and the other top Harveys managers were asked to continue running the Harveys properties. They will receive options to buy up to a 10 percent stake in the operation,

"We would not have done this deal without the management team at Harveys," said Colony spokesman Owen Blicksilver. He said Colony, which is headed by real-estate tycoons Thomas Barrack Jr. and Kelvin Davis, tends to give its operating managers considerable autonomy.

Scharer said his "primary goal" will be to "step back into the Las Vegas market. We are exploring whether to buy or build, but most likely, we will want to build something from the ground up."

Scharer said Colony's resources will help fuel Harveys' ability to explore other opportunities as well.

One of those is a $250 million South Lake Tahoe redevelopment project calling for a luxury hotel and convention center next to Harveys on the California side.

In addition, Harveys executives met last March with officials from Massachusetts to discuss building a $300 million casino in Salisbury Beach, Mass.

Harveys owns the oldest and largest hotel-casino at Lake Tahoe. It announced Monday the $420 million cash deal with Colony Capital Inc., a Los Angeles real-estate company.

The deal is the latest in a series of acquisitions and consolidations in the casino industry. Growth in the industry has slowed recently after booming in the early and mid-90s, when numerous new markets were emerging.

Harveys, which has its headquarters at the 54-year-old, 740-room Tahoe property, also owns a 251-room hotel/casino in Council Bluffs, Iowa, across the river from Omaha, Neb., and a 118-room hotel-casino in Central City, Colo. It reported net income of $30.8 million last year on revenues of $283.6 million.

Last summer, it sold its 40 percent stake in the Hard Rock Hotel and Casino in Las Vegas to its majority partner, Hard Rock Hotel Inc. The two parties had disagreed about how to expand the operation.

Colony Capital, a diversified, private firm with $4.5 billion of assets under management, signed a definitive agreement to pay $28 in cash for each of the 10.8 million shares of Harveys, which is listed on the New York Stock Exchange. It also will assume more than $100 million of Harveys debt.

Harveys stock, which closed last Friday at $22.69, soared $4.31 yesterday to $27.