Harrah's sells Australian stake

Harrah's Entertainment Inc. will sell its interests in Star City Holdings, an Australian company that owns the Star City Casino in Sydney, Australia.

However, Harrah's will continue to perform some management services for the casino under a three-year contract.

The sale, to TABCORP Holdings Ltd., is worth about $220 million after taxes. Harrah's will use the proceeds to reduce debt. The deal is part of TABCORP's move to take over Star City for about $1 billion (Australian dollars), Reuters reported.

"We have determined that it is in the best, long-term interest of Harrah's shareholders for us to monetize these assets while retaining an operational role," said Philip Satre, Harrah's chairman and chief executive.

"The value offered by TABCORP is at a significant premium to the value we assigned to these assets," said Colin Reed, Harrah's chief financial officer.

Harrah's interests in Star City were acquired through the company's acquisition last year of Showboat Inc. They include 135 million ordinary shares of Star City Holdings, representing about 24.6 percent of Star City's outstanding shares, options to purchase an additional 37 million ordinary shares, and 85 percent of a company that owns the management contract for the Star City Casino.

Harrah's will sell TABCORP 110 million of its 135 million ordinary Star City shares for $1.03 per share, its interest in the casino's management contract for $131 million, and an undetermined number of Star City Holdings' stock options.

The deal is subject to regulatory approval from the New South Wales Casino Control Authority. If the Authority does not approve the sale, TABCORP will purchase 27.5 million ordinary Star City Holdings shares from Harrah's at the same per-share price.

Assuming the deal is approved, Harrah's plans to sell the remainder of its Star City shares and options not purchased directly by TABCORP for cash or through tenders into TABCORP offers. TABCORP will offer to buy all shares of Star City not held by Harrah's for about $1.07 per share.

Harrah's will continue to provide management services for the Star City Casino for about $4.5 million a year. Under certain circumstances, that amount could increase to $6.43 million per year. And Satre will join TABCORP's board of directors.

"The retention of Harrah's for certain services is an important piece of our overall tender to acquire Star City," said Ross Wilson, managing director and chief executive of TABCORP. "Through the services agreement, we will ensure that this casino project maintains the continuity of Harrah's expertise."

"I look forward to joining the board of directors of TABCORP and to ensuring a smooth transition for Star City Casino," said Satre. "This transaction is a positive proposal for each party involved. Star City is becoming recognized as one of the world's most renowned casino entertainment properties."

Harrah's spokesman Ralph Berry said press reports earlier this year that Harrah's was entering the Internet gambling industry via Star City were incorrect. Star City briefly explored the possibility of entering the controversial Internet gambling industry, but backed down after Harrah's executives "expressed grave concerns," said Berry.

While legal in some parts of Australia, Internet gambling is not legal in New South Wales, where Star City is located, said Berry.

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