FTC delays Harrah’s deal for buyout of Harveys

David Strow

Tuesday, June 12, 2001 | 10:56 a.m.

Harrah's Entertainment Inc.'s $675 million buyout of Harveys Casino Resorts of Lake Tahoe has been temporarily delayed, as the Federal Trade Commission takes a closer look at the deal.

Harrah's said Monday that it has received "a request for additional information ... in connection with Harrah's pending acquisition of Harveys." The move will extend the "waiting period" imposed under federal antitrust laws by 30 days.

Mitchell Katz, spokesman for the FTC, cautioned the move didn't necessarily mean the FTC was preparing to oppose the merger.

"It just means we didn't have enough information to make the determination within the 30-day (initial waiting period)," Katz said. "I don't think that determination (on whether the Harrah's-Harveys deal causes antitrust concerns) has been made, because the commission doesn't have enough information to make it."

Katz said there are three possible courses of action. The FTC can terminate the waiting period and allow the deal to proceed, it can strike a deal with the company to allow the deal to move forward with conditions (usually selling assets), or it can move in federal court to stop the deal.

Gary Thompson, spokesman for Harrah's, said the company couldn't disclose what information was requested by the FTC, as Harrah's was bound by confidentiality agreements with Harveys. However, he did say the information was related to the Lake Tahoe market, where the deal will give Harrah's a market share exceeding 50 percent in such categories as number of slot machines and number of hotel rooms.

"We think it's a deal that makes economic and competitive sense, and we're confident that the acquisition will proceed, albeit it slightly delayed, and be consummated this summer," Thompson said. "Right now, the FTC is just looking for additional information."

The Harveys acquisition will also give Harrah's casinos in Council Bluffs, Iowa, and Central City, Colo. Harrah's currently has no presence in either market.

But Harveys will become Harrah's third property in Lake Tahoe, a market that has just six major properties. The deal would give Harrah's more than half of its 2,400 hotel rooms and more than 60 percent of its 5,700 slot machines. Its largest competitor following the deal would be Caesars Tahoe, owned by Park Place Entertainment Corp. of Las Vegas.

Park Place declined comment on whether it planned to protest with the FTC about the buyout. The FTC also refused to comment on whether it had received any complaints regarding the deal.

Another factor in the deal is that new competition is unlikely because of Lake Tahoe's stringent restrictions on new development.

But ultimately, Deutsche Banc Alex. Brown gaming analyst Andrew Zarnett doesn't believe the FTC will intervene by blocking the deal or forcing Harrah's to sell off Lake Tahoe assets.

"I think it (the request for information) is a signal the bureaucrats are doing their work," Zarnett said. "When you have the concentration issues as you do in Lake Tahoe, it would be prudent of them to think through and analyze the issue. (But) what I think they'll find is people who come and gamble in Lake Tahoe have a lot of choices."

Lake Tahoe visitors have the ability to visit alternative gaming jurisdictions, such as Reno, Las Vegas, or Indian casinos in California, Zarnett said.

"No one's forcing them to come to Lake Tahoe to spend all their entertainment dollars there," Zarnett said. "While it appears market concentration is heavy, given the consumer has many options within a few hours' drive of Lake Tahoe, I don't believe this will be an issue."

Another factor that must be considered is the customer base of each Lake Tahoe property owned by Harrah's, said Shannon Bybee, executive director of the International Gaming Institute at UNLV.

"Are the two places (Harveys and Harrah's) going after the same market?" Bybee said. "If they're going after different markets, it may not be as much of a concentration issue.

"They have to look at a variety of revenues ... total revenues, share of revenues, number of rooms, employees, games ... all of these things should be looked at, if they're trying to determine concentration."

The FTC's approval is just one step in the regulatory process. Harrah's must also receive the blessing of the Nevada Gaming Control Board to move forward -- and the control board has the ability to deny a deal if board members believe it will result in too much market concentration.

State gaming regulations give the board 16 different factors that may be considered, including number of slot machines, gaming revenues, hotel rooms and employees. However, it does not set a specific percentage as a trigger, leaving the decision to act entirely up to the board.

Market concentration has been examined a number of times in recent years, when Park Place bought Caesars World, when MGM Grand Inc. swallowed Mirage Resorts Inc., and when Station Casinos Inc. absorbed the Santa Fe, the Fiesta and the Reserve. All of these deals passed without incident.

"Obviously, there is going to be some market concentration (with the Harveys purchase)," said Dennis Neilander, chairman of the control board. "The ramifications of that are what we'll be looking at. We're actively investigating it right now. We'll look at it from several different angles ... the lake, the Reno market, the Carson Valley market."

Two factors Neilander said he'll examine closely before making a decision are the merger's effect on Lake Tahoe patrons, as well as its impact on vendors.

"Market concentration has benefits as well as detriments," Neilander said.