POSTED: Tuesday August 17th 2010
FOR IMMEDIATE RELEASE

Short Seller Paulson Buys up Stake in Harrah's?

The private gaming corporation Harrah’s Entertainment Inc. owns over 50 casinos and is the world’s largest gaming operator by revenue.

Yesterday, the international gambling behemoth announced its plans to register 9.9% of its stock with the SEC.

The shares are owned by the infamous subprime shorting, Goldman Sachs colluding, billionaire hedge fund manager John Paulson. The reason for the move is to convert Paulson’s equity stake into common voting stock, giving him more voice and power in the direction of the company.

A cursory look, Harrah’s business, especially its financial results for the quarter (a $247 million loss) make it look like Paulson’s picked a loser here, except this time he went long on it. But anyone who walks away from a Goldman Sachs deal with $15 billion in their pocket while the investment bank settles for a $550 million lawsuit deserves a bit of credit on their next investment. And, as disclosed in the filing, Paulson also has experience in the gambling industry with large investments in both the MGM Mirage and Boyd Gaming Corp, so let’s not jump the gun and bet against Paulson just yet.

Because while the deal and ownership structure seem arcane, you can be sure Paulson knows exactly what he’s doing (that’s a massive understatement by the way). In 2008, Harrah's was acquired by the private equity firms Apollo and TPG Capital LP with $30.8 billion leveraged buyout, seizing 89.3% of the company’s stock. This June, Apollo and TPG, along with Paulson's hedge fund company, exchanged $1.1 billion in Harrah's debt for an equity stake of about 15.6 percent. To translate Paulson’s 9.9% stake into management control, its needs to be filed with the SEC, and that’s what he’s just done.

It might not be a bad move. Despite last month’s discouraging financial results and the fact this time last year Harrah posted a quarterly $2.3 billion profit, a lot’s happening at Harrah’s. Controlling firm Apollo Management and private equity giant TPG, said the Paulson deal would grant the company a war chest to pursue domestic and international gaming growth opportunities. The company is already partnering with Rock Gaming LLC and plans to spend $600 million to open casinos in Cleveland and Cincinnati where Ohio voted to approve casino gaming in November of 2009. The company operates 38 casinos across North America and one each worldwide in Egypt, the United Kingdom, South Africa, and Uruguay.

And just listen to what Harrah CEO Gary Loveman had to say.

“During the past two years, we’ve reduced expenses and debt substantially, increased our liquidity to about $3 billion, and acquired the Planet Hollywood Resort and Casino in Las Vegas and Thistledown racetrack in Cleveland. I believe we’re well-positioned for an eventual legalization of online gaming in the United States, and more capable of capitalizing on additional growth opportunities than at any time in the past two years.”
Indeed. Make way for Paulson.

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Keywords · John Paulson · SEC · Harrahs Entertainment · MGM Mirage · Gary Loveman · gambling · casino · Goldman Sachs

Name: John Waverly
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