Mergers And Acquisitions: Data Request May Stall Deal

The plot surrounding the two pending gaming industry megamergers thickened late Friday when the Federal Trade Commission officially requested more information from Harrah's Entertainment and Caesars Entertainment about the competitive consequences of their proposed $9.4 billion merger.

Antitrust experts said the request, following a similar demand in July for information from MGM Mirage about its merger plans with Mandalay Resort Group, is likely to delay Harrah's deal for months and could be a harbinger of orders to sell off some of the hotel-casinos involved in the deal.

The mystery now is how long the federal intervention will delay the merger and how many hotel-casinos, if any, Harrah's may need to sell to complete the deals.

The Harrah's-Caesars merger also must be reviewed by state regulators. Their investigations may delay the deal.

Nevada Gaming Control Board Chairman Dennis Neilander said Friday his agency will conduct its investigation simultaneously with the FTC review, but will not put the Caesars sale on its calendar until federal regulators have ruled.

Furthermore, he said the control board has yet to receive an application from Harrah's, although the company has asked for a meeting next week. He expects to receive its application at that time.

Antitrust experts said the request shows federal regulators are taking antitrust problems and forced divestitures seriously.

"Basically, they're going to do a thorough investigation. It could conceivably lead to divestitures in certain areas, but at the end of the day I don't think the (Harrah's) deal is in jeopardy," Marc Schildkraut, a former assistant director of the FTC, said.

Regulators have the authority to order the divestiture of specific hotel-casinos if the proposed merger would seriously damage competition in any given area, depending on how regulators define the geographic market.

"And while they may be required to make divestitures, they were prepared to do that. They said it in their press conference and the agreement itself contemplates they might have to do that," Schildkraut said.

The escape clause in the final merger agreement gives Harrah's the option of leaving Caesars Entertainment at the altar if it believes any property sales ordered by federal or state regulators would hurt the company "materially." Antitrust experts said the investigation is likely to delay consummating the buyout for up to 10 months. Schildkraut, now a partner in Howrey Simon Arnold & White, a Washington, D.C.-based law firm specializing in antitrust law, said the problems for Harrah's will arise mainly outside Las Vegas.

He said the biggest problems will arise in Atlantic City where the combined company would own five of 12 casinos; Tunica, Miss., where it would own five of nine casinos; and New Orleans, where it would own two of four casinos.

Schildkraut said the FTC could decide the different cities compete with each other, so there would be no need for divestitures, or that visitors consider each city a unique destination so the merger reduce competition and increase the companies' pricing power.

Schildkraut said the FTC is not expected to consider the two merger proposals togetherbecause MGM Mirage and Harrah's concentrate on different markets.

However, he said the mergers coming at the same time could still slow both deals because the FTC may want to proceed carefully in understanding all the competitive issues involved.

Harrah's and Caesars Entertainment said in a joint statement they intend to respond to the request promptly.

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