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Caesars CEO in Line for $17 Million Merger Bonus

19 Jul 2004

By Liz Benston, Las Vegas Sun

Caesars Entertainment Inc. Chief Executive Wally Barr stands to receive at least $17 million under an employment contract if he resigns from Caesars as anticipated after a pending acquisition by Harrah's Entertainment Inc. is consummated.

Barr would receive his base salary of $1 million for another two years in addition to performance bonuses as well as stock options worth roughly $14.9 million that could be immediately exercised once the deal is done, according to the contract.

Barr's potential payout was highlighted Sunday in a New York Times story on executives profiting from mergers -- often while shareholders and board members are either in the dark or don't appear to care about their exit payouts.

"In theory, change-in-control provisions make sense," said Tim Ranzetta, the president of Equilar. "They encourage executives to act in the best interests of shareholders in transactions that they anticipate will increase shareholder value, which at the same time may harm their own careers. But empirical research seems to indicate that most companies underperform relative to the market after a merger while executives benefit from these large, one-time payouts."

Times reporter Gretchen Morgenson wrote: "One reason that shareholder outrage has been muted may be that few people, beyond the executives themselves and maybe the company's compensation committee, know how costly these pay deals are. Even with all the scrutiny of corporate governance in recent years, a full tally of what executives will earn in retirement or under a change of control is simply not disclosed. Not anywhere."

A Caesars spokesman declined comment on whether Barr's exit pay is excessive.

Separately, up to four members of Caesars' board could join the board of directors of Harrah's following the purchase, according to a merger agreement filed with the Securities and Exchange Commission Friday.

Caesars board member William Barron Hilton and Caesars Board Chairman Stephen Bollenbach will be named to the Harrah's board upon completion of the deal, the agreement said. Harrah's board members will add a third unnamed Caesars director to the Harrah's board and could add a fourth, it said. A source familiar with the agreement who declined to be named said Harrah's is likely to recommend Caesars director Stephen Crown, one of Caesars' largest shareholders, to the third board position.

All of the directors have ties to Hilton Hotels Corp., which spun off its casino assets to form the predecessor to Caesars Entertainment. Hilton is the board chairman and former chief executive of Hilton Hotels. Bollenbach is Hilton's chief executive and a board member of the company. Crown is also a director of Hilton.

For each share of Caesars stock, shareholders shall receive either $17.75 in cash or .3247 shares of Harrah's stock, it said. That exchange ratio is subject to adjustment because the transaction calls for the value of the deal to fluctuate with the value of Harrah's share price, the companies said.

In a joint announcement last week, Harrah's said it had agreed to pay about $17 per share for Caesars. Shareholders will be able to elect to receive either shares of Harrah's stock or cash, to the extent available, the company said. The equity portion of the deal is worth about $5.2 billion, including $1.8 billion in cash and 66.3 million shares of Harrah's common stock.

If the deal is terminated, the agreement calls for Caesars to pay Harrah's a breakup fee of $180 million.

One or both parties may agree to scuttle the deal, the agreement states. Caesars could back out if it receives a more favorable bid. Harrah's also could nix the deal "if any governmental entity issues an order, decree or ruling or takes any other action permanently enjoining, restraining or otherwise prohibiting the merger" and that action becomes "final and nonappealable."

The regulatory stipulation is standard in many merger agreements between gaming companies, which are subject to many regulatory approvals nationwide, analysts say.

In the agreement, Harrah's said it would sell casino assets if regulators so required to consummate the purchase.

The purchase is expected to close on or before July 14, 2005, the companies said.

Separately, a Caesars Entertainment stockholder has filed suit against the company and its board of directors alleging that the board engaged in "self-dealing" and breached its fiduciary duties by agreeing to be bought out by Harrah's Entertainment Inc.

The suit, filed in Clark County District Court on Thursday by shareholder William Derasmo, claims the board "failed to properly value Caesars" and "ignored or did not protect against the numerous conflicts of interest resulting from their own interrelationships or connection with the acquisition." The suit was filed the same day as an announcement that the companies' respective boards had approved Harrah's $9.4 billion bid to buy Caesars.

Caesars said its board of directors unanimously adopted the purchase agreement with terms that "are advisable and fair to and in the best interests of the company and its stockholders, according to the merger agreement.

Derasmo's San Diego-based attorneys could not be reached for comment and Caesars representatives declined comment.

Copyright © Las Vegas Sun. Inc. Republished with permission.

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