Partner in Harrah’s merger fined a record $10.2 million

Thursday, Dec. 2, 1999 | 10:58 a.m.

SUN STAFF AND WIRE REPORTS

Harrah's stock

The recent 10 percent drop in the price of Harrah's Entertainment Inc. stock is unwarranted, says Credit Suisse First Boston analyst David Anders.

Anders said expected same-store revenue and cash-flow gains should result in a stock price approaching $35 a share next year. He reiterated his "strong buy" rating on the stock.

Harrah's stock closed at $26.6875 Wednesday, down 93.75 cents a share.

Anders said Harrah's management believes it can achieve 10 percent annual revenue and cash-flow gains at its 19 properties for the next one to two years. Each 1 percentage point increase in cash flow translates into 4 cents of additional earnings per share.

Harrah's current 6.7 multiple of enterprise value to estimated year 2000 cash flow is "too extreme," Anders said. "Our $35 price target implies a more reasonable multiple of 8.0."

His earnings projection for 2000 excludes any incremental income from the company's acquisition of Players International, which could add as much as 7 cents to per-share net income.

The analyst noted that price appreciation in Harrah's stock bought on Dec. 1 and sold the following May 30 has outpaced gains of the Standard & Poor's 500 index in four of the past five years.

That trend should continue this year, he said, due to Millennium celebrations, an increase in late-winter and early spring convention business and the Chinese New Year occurring in mid-February.

BATON ROUGE, La. -- Players International, accused of paying extortion money to get a casino license, agreed Wednesday to get out of the Louisiana gambling business and pay a U.S. record gambling industry fine of $10.2 million.

Wednesday's settlement clears the way for the Atlantic City company to be acquired by Harrah's Entertainment Inc. of Las Vegas for $425 million.

Federal prosecutors claim Players executives funneled money to former Gov. Edwin Edwards and his son, Stephen, through consultant Ricky Shetler, to get a license and protection during Edwards' last term from 1992 to 1996.

Shetler has pleaded guilty and will testify for the government in a trial to begin on Jan. 10.

The vote by the Louisiana Gaming Control Board to approve the settlement, instead of revoking Players' license, was 6-1.

Board member Robert Fleming was the lone dissenter. He referred to the federal investigation and said it appeared to him that crime, corruption and collusion occurred.

"I don't think we ought to reward Players," he said.

The Players executives involved have since left the company and have not been charged, though they are expected to be called by the government to testify and Louisiana reserved the right to take court action to prevent them from benefitting economically from their alleged actions.

Once the federal charges were aired, the Louisiana Gaming Control Board began an investigation of Players' suitability to hold the license that operates two riverboat casinos in Lake Charles.

The settlement, requiring Players to sell the boats, works out well for the company and for federal prosecutors who did not want parts of the case against Edwards and others played out before the Gambling Board in advance of the January trial.

Players faced possible revocation of its license. The $10.2 million, officials said, represents the profits it made from the license. Players also owns casinos in Illinois and Missouri and a horse-racing track in Paducah, Ky.

Previous major fines include $3 million levied against the then-owners of the Stardust in Las Vegas in 1984 for skimming and $1.5 million levied against the Imperial Palace in Las Vegas in 1988. Owner Ralph Engelstad was penalized for displaying Nazi memorabilia and hosting parties honoring Adolf Hitler.

Players Chief Executive John Groom told the Press of Atlantic City the $10.2 million fine was a "bitter pill to swallow."

"While we would have preferred to continue to operate and have this litigated -- and in the end everybody would have been vindicated -- in the interest of getting the deal closed we needed to come to some agreement with the state," Groom told the Press. "Otherwise, we would have found ourselves in protracted litigation and our shareholders would have been left in a quandary, and that was unacceptable to our board of directors. We needed to get over this hurdle."

Walter Abbott, a director of the National Coalition Against Legalized Gambling and a resident of Ruston, La., told the Press that Players got off easy.

"It's a parking ticket, a sales commission, pocket change -- take your pick. Harrah's is paying for it anyway. It's of no consequence whatsoever," Abbott told the Press.